A Multivariate Threshold Varying Conditional Correlations Model |
| |
Authors: | W Kwan K W Ng |
| |
Institution: | 1. The Hong Kong Polytechnic University, Hong Kong Community College , Hong Kong;2. Department of Statistics and Actuarial Science , The University of Hong Kong , Hong Kong |
| |
Abstract: | In this article, a multivariate threshold varying conditional correlation (TVCC) model is proposed. The model extends the idea of Engle (2002
Engle , R. F. ( 2002 ). Dynamic conditional correlation: a simple class of multivariate generalized autoregressive conditional heteroskedasticity models . Journal of Business and Economic Statistics 20 ( 3 ): 339 – 350 .Taylor & Francis Online], Web of Science ®] , Google Scholar]) and Tse and Tsui (2002
Tse , Y. K. ,
Tsui , A. K. C. ( 2002 ). A multivariate GARCH model with time-varying correlations . Journal of Business and Economic Statistics , July 2002 , 20 ( 3 ): 351 – 362 .Taylor & Francis Online], Web of Science ®] , Google Scholar]) to a threshold framework. This model retains the interpretation of the univariate threshold GARCH model and allows for dynamic conditional correlations. Techniques of model identification, estimation, and model checking are developed. Some simulation results are reported on the finite sample distribution of the maximum likelihood estimate of the TVCC model. Real examples demonstrate the asymmetric behavior of the mean and the variance in financial time series and the ability of the TVCC model to capture these phenomena. |
| |
Keywords: | Conditional correlation Multivariate TVCC model Threshold Volatility |
|
|