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Dynamic Conditional Eigenvalue GARCH

Author

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  • Simon Hetland

    (Department of Economics, University of Copenhagen, Denmark)

  • Rasmus Søndergaard Pedersen

    (Department of Economics, University of Copenhagen, Denmark)

  • Anders Rahbek

    (Department of Economics, University of Copenhagen, Denmark)

Abstract

In this paper we consider a multivariate generalized autoregressive conditional heteroskedastic (GARCH) class of models where the eigenvalues of the conditional covariance matrix are time-varying. The proposed dynamics of the eigenvalues is based on applying the general theory of dynamic conditional score models as proposed by Creal, Koopman and Lucas (2013) and Harvey (2013). We denote the obtained GARCH model with dynamic conditional eigenvalues (and constant conditional eigenvectors) as the ?-GARCH model. We provide new results on asymptotic theory for the Gaussian QMLE, and for testing of reduced rank of the (G)ARCH loading matrices of the time-varying eigenvalues. The theory is applied to US data, where we ?find that the eigenvalue structure can be reduced similar to testing for the number in factors in volatility models.

Suggested Citation

  • Simon Hetland & Rasmus Søndergaard Pedersen & Anders Rahbek, 2019. "Dynamic Conditional Eigenvalue GARCH," Discussion Papers 19-13, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:1913
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    File URL: https://www.economics.ku.dk/research/publications/wp/dp_2019/1913.pdf
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    Cited by:

    1. Simon Hetland, 2020. "Spectral Targeting Estimation of $\lambda$-GARCH models," Papers 2007.02588, arXiv.org.

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    More about this item

    Keywords

    Multivariate GARCH; GO-GARCH; Reduced Rank; Asymptotic Theory;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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