CREATES

A parsimonious test of constancy of a positive definite correlation matrix in a multivariate time-varying GARCH model

Research output: Working paper/Preprint Working paperResearch

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  • rp22_01

    Final published version, 2.63 MB, PDF document

  • Jian Kang, Dongbei University of Finance and Economics
  • ,
  • Johan Stax Jakobsen, Copenhagen Business School
  • ,
  • Annastiina Silvennoinen, School of Economics and Finance, Queensland University of Technology, Australia
  • Timo Teräsvirta
  • Glen Wade, Queensland University of technology,
We construct a parsimonious test of constancy of the correlation matrix in the multivariate conditional correlation GARCH model, where the GARCH equations are time-varying. The alternative to constancy is that the correlations change deterministically as a function of time. The alternative is a covariance matrix, not a correlation matrix, so the test may be viewed as a general test of stability of a constant correlation matrix. The size of the test in finite samples is studied by simulation. An empirical example is given.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages49
Publication statusPublished - 4 Jan 2022
SeriesCREATES Research Papers
Number2022-01

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