Open access
Datum
2008-02Typ
- Working Paper
ETH Bibliographie
yes
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Abstract
This paper considers a formulation of the extended constant or time-varying conditional correlation GARCH model which allows for volatility feedback of either sign, i.e., positive or negative. In the previous literature, negative volatility spillovers were ruled out by the assumption that all the coefficients of the model are non-negative, which is a sufficient condition for ensuring the positive definiteness of the conditional covariance matrix. In order to allow for negative feedback, we show that the positive definiteness of the conditional covariance matrix can be guaranteed even if some of the parameters are negative. Thus, we extend the results of Nelson and Cao (1992) and Tsai and Chan (2008) to a multivariate setting. For the bivariate case of order one we look into the consequences of adopting these less severe restrictions and find that the flexibility of the process is substantially increased. Our results are helpful for the model-builder, who can consider the unrestricted formulation as a tool for testing various economic theories. Mehr anzeigen
Persistenter Link
https://doi.org/10.3929/ethz-a-005552237Publikationsstatus
publishedZeitschrift / Serie
KOF Working PapersBand
Verlag
KOF Swiss Economic Institute, ETH ZurichThema
WIRTSCHAFTSTHEORIEN; Inequality constraints; Multivariate GARCH processes; ECONOMIC THEORIES; Volatility feedbackOrganisationseinheit
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
ETH Bibliographie
yes
Altmetrics