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Inference and testing on the boundary in extended constant conditional correlation GARCH models

Listed author(s):
  • Rasmus Søndergaard Pedersen

    (Department of Economics, University of Copenhagen)

We consider inference and testing in extended constant conditional correlation GARCH models in the case where the true parameter vector is a boundary point of the parameter space. This is of particular importance when testing for volatility spillovers in the model. The large-sample properties of the QMLE are derived together with the limiting distributions of the related LR, Wald, and LM statistics. Due to the boundary problem, these large-sample properties become nonstandard. The size and power properties of the tests are investigated in a simulation study. As an empirical illustration we test for (no) volatility spillovers between foreign exchange rates.

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File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2015/1510.pdf
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 15-10.

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Length: 43 pages
Date of creation: 04 Sep 2015
Handle: RePEc:kud:kuiedp:1510
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