Robust parametric tests of constant conditional correlation in a MGARCH model |
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Authors: | Wasel Shadat Chris Orme |
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Institution: | Economics, School of Social Science, University of Manchester, Manchester, UK |
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Abstract: | This article provides a rigorous asymptotic treatment of new and existing asymptotically valid conditional moment (CM) testing procedures of the constant conditional correlation (CCC) assumption in a multivariate GARCH model. Full and partial quasi maximum likelihood estimation (QMLE) frameworks are considered, as is the robustness of these tests to non-normality. In particular, the asymptotic validity of the LM procedure proposed by Tse (2000 Tse, Y. K. (2000). A test for constant correlations in a multivariate GARCH model. Journal of Econometrics 98 (1):107–127.Crossref], Web of Science ®] , Google Scholar]) is analyzed, and new asymptotically robust versions of this test are proposed for both estimation frameworks. A Monte Carlo study suggests that a robust Tse test procedure exhibits good size and power properties, unlike the original variant which exhibits size distortion under non-normality. |
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Keywords: | Conditional moment tests constant conditional correlation Monte Carlo multivariate GARCH robustness |
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