In this article we propose a new multivariate generalized autoregressive conditional heteroscedasticity (MGARCH) model with time-varying correlations. We adopt the vech representation based on the conditional variances and the conditional correlations. Whereas each conditional-variance term is assumed to follow a univariate GARCH formulation, the conditional-correlation matrix is postulated to follow an autoregressive moving average type of analog. Our new model retains the intuition and interpretation of the univariate GARCH model and yet satisfies the positive-definite condition as found in the constant-correlation and Baba-Engle-Kraft-Kroner models We report some Monte Carlo results on the finite-sample distributions of the maximum likelihood estimate of the varying-correlation MGARCH model. The new model is applied to some real data sets.
BEKK model, Constant correlation, Maximum likelihood estimate, Monte Carlo method, Multivariate GARCH model, Varying correlation
Journal of Business and Economic Statistics
TSE, Yiu Kuen and TSUI, Albert K.C..
A Multivariate Generalized Autoregressive Conditional Heteroscedasticity Model with Time-Varying Correlations. (2002). Journal of Business and Economic Statistics. 20, (3), 351-362. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/348
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