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Multivariate GARCH models: software choice and estimation issues

Author

Listed:
  • Gita Persand

    (School of Management, University of Southampton, Southampton, UK)

  • Chris Brooks

    (ISMA Centre, University of Reading, Reading, UK)

  • Simon P. Burke

    (Department of Economics, University of Reading, Reading, UK)

Abstract

A large number of important practical tasks can be accomplished using a multivariate GARCH model. This paper examines the relatively small number of software packages that are currently available for estimating such models, in spite of their widespread use. The review focuses upon estimation issues and differences in available options for controlling the optimisation, and the review then considers an application to the estimation of optimal hedge ratios. Large differences in estimated parameters and standard errors are observed, but these are found to generate only modest differences in optimal hedge ratios and virtually indiscernible differences in model performance measures.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Gita Persand & Chris Brooks & Simon P. Burke, 2003. "Multivariate GARCH models: software choice and estimation issues," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(6), pages 725-734.
  • Handle: RePEc:jae:japmet:v:18:y:2003:i:6:p:725-734
    DOI: 10.1002/jae.717
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    File URL: http://qed.econ.queensu.ca:80/jae/2003-v18.6/
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    References listed on IDEAS

    as
    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    2. Chris Brooks & Olan T. Henry & Gita Persand, 2002. "The Effect of Asymmetries on Optimal Hedge Ratios," The Journal of Business, University of Chicago Press, vol. 75(2), pages 333-352, April.
    3. Brooks, Chris & Burke, Simon P. & Persand, Gita, 2001. "Benchmarks and the accuracy of GARCH model estimation," International Journal of Forecasting, Elsevier, vol. 17(1), pages 45-56.
    4. Fiorentini, Gabriele & Calzolari, Giorgio & Panattoni, Lorenzo, 1996. "Analytic Derivatives and the Computation of GARCH Estimates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 399-417, July-Aug..
    5. Baillie, Richard T & Myers, Robert J, 1991. "Bivariate GARCH Estimation of the Optimal Commodity Futures Hedge," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(2), pages 109-124, April-Jun.
    6. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
    7. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August.
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    Citations

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    Cited by:

    1. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2006. "Volatility and Correlation Forecasting," Handbook of Economic Forecasting, Elsevier.
    2. Zhu, Jie, 2009. "Testing for expected return and market price of risk in Chinese A and B share markets: A geometric Brownian motion and multivariate GARCH model approach," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(8), pages 2633-2653.
    3. Colavecchio, Roberta & Funke, Michael, 2008. "Volatility transmissions between renminbi and Asia-Pacific on-shore and off-shore U.S. dollar futures," China Economic Review, Elsevier, vol. 19(4), pages 635-648, December.
    4. Palandri, Alessandro, 2009. "Sequential conditional correlations: Inference and evaluation," Journal of Econometrics, Elsevier, vol. 153(2), pages 122-132, December.
    5. Linkon Mondal, 2012. "Foreign Exchange Market Intervention and Exchange Rate Volatility: A Bivariate GARCH Model for India," The IUP Journal of Bank Management, IUP Publications, vol. 0(4), pages 29-40, November.
    6. Krishnakumar, Jaya & Kabili, Andi & Roko, Ilir, 2012. "Estimation of SEM with GARCH errors," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3153-3181.
    7. Silvennoinen, Annastiina & Teräsvirta, Timo, 2007. "Multivariate GARCH models," SSE/EFI Working Paper Series in Economics and Finance 669, Stockholm School of Economics, revised 18 Jan 2008.
    8. Torben G. Andersen & Tim Bollerslev & Peter F. Christoffersen & Francis X. Diebold, 2005. "Volatility Forecasting," PIER Working Paper Archive 05-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    9. Ooms, M., 2008. "Trends in Applied Econometrics Software Development 1985-2008, an analysis of Journal of Applied Econometrics research articles, software reviews, data and code," Serie Research Memoranda 0021, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    10. A. Yalta & A. Yalta, 2010. "Should Economists Use Open Source Software for Doing Research?," Computational Economics, Springer;Society for Computational Economics, vol. 35(4), pages 371-394, April.
    11. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
    12. Patrick McGlenchy & Paul Kofman, 2004. "Structurally Sound Dynamic Index Futures Hedging," Econometric Society 2004 Australasian Meetings 80, Econometric Society.
    13. Nico Keilman & Dinh Quang Pham, 2004. "Empirical errors and predicted errors in fertility, mortality and migration forecasts in the European Economic Area," Discussion Papers 386, Statistics Norway, Research Department.
    14. Kwan, Clarence C.Y., 2008. "Estimation error in the average correlation of security returns and shrinkage estimation of covariance and correlation matrices," Finance Research Letters, Elsevier, vol. 5(4), pages 236-244, December.
    15. Franck Martin & Jiangxingyun Zhang, 2014. "Correlation and volatility on bond markets during the EMU crisis: does the OMT change the process ?," Economics Bulletin, AccessEcon, vol. 34(2), pages 1327-1349.
    16. Linkon Mondal, 2014. "Volatility spillover between the RBI’s intervention and exchange rate," International Economics and Economic Policy, Springer, vol. 11(4), pages 549-560, December.
    17. repec:eee:eneeco:v:67:y:2017:i:c:p:508-519 is not listed on IDEAS

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