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Proxy-identification of a structural MGARCH model for asset returns

Author

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  • Matthias R. Fengler

    (University of St. Gallen - SEPS: Economics and Political Sciences; Swiss Finance Institute)

  • Jeannine Polivka

    (University of St. Gallen)

Abstract

We extend the multivariate GARCH (MGARCH) specification for volatility modeling by developing a structural MGARCH model that targets the identification of shocks and volatility spillovers in a speculative return system. Similarly to the proxy-SVAR framework, we leverage auxiliary proxy variables to identify the underlying shock system. The estimation of structural parameters, including an orthogonal matrix, is achieved through techniques derived from Riemannian optimization. Our analysis of daily S&P 500 returns, 10-year Treasury yields, and the U.S. Dollar Index, employing news-driven instrument variables, identifies an equity and a bond market shock.

Suggested Citation

  • Matthias R. Fengler & Jeannine Polivka, 2024. "Proxy-identification of a structural MGARCH model for asset returns," Swiss Finance Institute Research Paper Series 24-55, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2455
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    Cited by:

    1. is not listed on IDEAS
    2. Matthias R Fengler & Jeannine Polivka, 2025. "Structural Volatility Impulse Response Analysis," Journal of Financial Econometrics, Oxford University Press, vol. 23(2), pages 951-971.

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    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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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