TY - UNPB

T1 - A Parsimonious Test of Constancy of a Positive Definite Correlation Matrix in a Multivariate Time-varying GARCH

AU - Kang, Jian

AU - Jakobsen, Johan Stax

AU - Silvennoinen, Annastiina

AU - Teräsvirta, Timo

PY - 2022/1

Y1 - 2022/1

N2 - 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.

AB - 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.

KW - Deterministically varying correlation

KW - Multiplicative time-varying GARCH

KW - Multivariate GARCH

KW - Nonstationary volatility

KW - Smooth transition GARCH

KW - Deterministically varying correlation

KW - Multiplicative time-varying GARCH

KW - Multivariate GARCH

KW - Nonstationary volatility

KW - Smooth transition GARCH

M3 - Working paper

T3 - Creates Research Paper

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

PB - Aarhus Universitet

CY - Aarhus

ER -