GENERALIZED AUTOREGRESSIVE CONDITIONAL CORRELATION

By Michael Mcaleer, Felix Chan, Suhejla Hoti, Offer Lieberman. Econometric Theory, 2008

182 citations recorded by the source corpus.

This paper develops a generalized autoregressive conditional correlation (GARCC) model when the standardized residuals follow a random coefficient vector autoregressive process. As a multivariate generalization of the Tsay (1987, Journal of the American Statistical Association 82, 590–604) random coefficient autoregressive (RCA) model, the GARCC model provides a motivation for the conditional correlations to be time varying. GARCC is also more general than the Engle (2002, Journal of Business & Economic Statistics 20, 339–350) dynamic conditional correlation (DCC) and the Tse and Tsui (2002, Journal of Business & Economic Statistics 20, 351–362) varying conditional correlation (VCC) models and does not impose unduly restrictive conditions on the parameters of the DCC model. The structural properties of the GARCC model, specifically, the analytical forms of the regularity conditions, are derived, and the asymptotic theory is established. The Baba, Engle, Kraft, and Kroner (BEKK) model of Engle and Kroner (1995, Econometric Theory 11, 122–150) is demonstrated to be a special case of a multivariate RCA process. A likelihood ratio test is proposed for several special cases of GARCC. The empirical usefulness of GARCC and the practicality of the likelihood ratio test are demonstrated for the daily returns of the Standard and Poor's 500, Nikkei, and Hang Seng indexes.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2d324c2f6f0f58276646c053046d818a8e70589e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Conditional correlations and volatility spillovers between crude oil and stock index returns (2010, unknown): “These models assume constant conditional correlations, and do not suffer from the curse of dimensionality, as compared with the VECH and BEKK models (see McAleer et al. (2008) and Caporin and McAleer (2009) for further details).”
Estimating multivariate volatility models equation by equation (2016, methodology): “(1990), van der Weide (2002) and Lanne and Saikkonen (2007)), or using an alternative estimation criterion (see Engle et al. (2008)). An approach combining the two concepts was recently proposed by Engle and Kelly (2012). A solution to the high dimension problem which does not preclude a high dimens”
MGARCH models: Trade-off between feasibility and flexibility (2018, methodology): “McAleer et al. (2008) show that the DBEKK and SBEKK models can be derived as multivariate extensions of the random coefficients autoregression of Tsay (1987).”
Dynamic Conditional Correlation: On Properties and Estimation (2013, unknown): “(23) The second is ̄ij,t+m|t ≡ ̄ij (1− α− β) m−2 n=0 (α+ β) + ρij,t+1(α+ β) m−1, (24) where ̄ij ≡ E[εi,t εj,t].”
Forecasting value‐at‐risk with a parsimonious portfolio spillover GARCH (PS‐GARCH) model (2008, methodology): “facilitate estimation. McAleer et al. (2005) extended these conditional correlation models”
A Generalized Dynamic Conditional Correlation Model: Simulation and Application to Many Assets (2009, methodology): “Several extensions of the standard DCC model have been suggested, e.g. Cappiello, Engle and Sheppard (2006) and McAleer et al. (2008).”
Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets (2008, methodology): “The VARMA version of BEKK has not yet been analyzed theoretically (see McAleer et al. (2008) for further theoretical details).”
Do We Really Need Both BEKK and DCC? A Tale of Two Covariance Models (2009, unknown): “(7) McAleer et al (2008) In comparison with the purported proofs of consistency and asymptotic normality of the QML estimators of the DCC parameters in the literature, McAleer et al. (2008) develop a generalized autoregressive conditional correlation (GARCC) model when the standardized residuals…”
The Ten Commandments for Optimizing Value-at-Risk and Daily Capital Charges (2009, unknown): “and Oxley (2002), for ranking university quality ( McAleer (2005b) ), for academics”