A Parsimonious Test of Constancy of a Positive Definite Correlation Matrix in a Multivariate Time-varying GARCH

Jian Kang, Johan Stax Jakobsen, Annastiina Silvennoinen, Timo Teräsvirta

Publikation: Working paperForskning

Abstrakt

We construct a parsimonious test of constancy of the correlation matrix in the multivariate conditional correlation GARCH model, where the GARCH equations are time-varying. The alternative to constancy is that the correlations change deterministically as a function of time. The alternative is a covariance matrix, not a correlation matrix, so the test may be viewed as a general test of stability of a constant correlation matrix. The size of the test in finite samples is studied by simulation. An empirical example is given.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverAarhus Universitet
Antal sider48
StatusUdgivet - jan. 2022
NavnCreates Research Paper
Nummer2022-01

Emneord

  • Deterministically varying correlation
  • Multiplicative time-varying GARCH
  • Multivariate GARCH
  • Nonstationary volatility
  • Smooth transition GARCH

Citationsformater