Thresholds, News Impact Surfaces and Dynamic Asymmetric Multivariate GARCH

Caporin, Massimiliano; McAleer, Michael

doi:10.2139/ssrn.1198702

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Thresholds, News Impact Surfaces and Dynamic Asymmetric Multivariate GARCH

50 Pages Posted: 6 Aug 2008 Last revised: 24 Jun 2009

See all articles by Massimiliano Caporin

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Date Written: January 1, 2008

Abstract

DAMGARCH extends the VARMA-GARCH model of Ling and McAleer (2003) by introducing multiple thresholds and time-dependent structure in the asymmetry of the conditional variances. DAMGARCH models the shocks affecting the conditional variances on the basis of an underlying multivariate distribution. It is possible to model explicitly asset-specific shocks and common innovations by partitioning the multivariate density support. This paper presents the model structure, describes the implementation issues, and provides the conditions for the existence of a unique stationary solution, and for consistency and asymptotic normality of the quasi-maximum likelihood estimators. The paper also provides analytical expressions for the news impact surface implied by DAMGARCH and an empirical example.

Keywords: multivariate asymmetry, conditional variance, stationarity conditions, asymptotic theory, multivariate news impact curve

JEL Classification: C32, C51, C52

Suggested Citation: Suggested Citation

Caporin, Massimiliano and McAleer, Michael, Thresholds, News Impact Surfaces and Dynamic Asymmetric Multivariate GARCH (January 1, 2008). Available at SSRN: https://ssrn.com/abstract=1198702 or http://dx.doi.org/10.2139/ssrn.1198702