A Model for Multivariate Non-Negative Valued Processes in Financial Econometrics

38 Pages Posted: 28 Jan 2009

See all articles by Fabrizio Cipollini

Fabrizio Cipollini

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni)

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits; Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti"

Date Written: January, 27 2009

Abstract

The Multiplicative Error Model for nonnegative valued processes is specified as the product of a (conditionally autoregressive) scale factor and an innovation process with nonnegative support. A multivariate extension allows the innovations to be contemporaneously correlated. The estimation procedure is hindered by the lack of sufficiently flexible probability density functions for such processes. We adopt copula functions to be able to estimate the parameters of the scale factors and of the correlations of the innovation processes. We illustrate the feasibility of the procedure and the gains over the equation by equation approach using a model with different volatility measures.

Keywords: GARCH, MEM, Volatility, Copula, financial time series

Suggested Citation

Cipollini, Fabrizio and Engle, Robert F. and Gallo, Giampiero M., A Model for Multivariate Non-Negative Valued Processes in Financial Econometrics (January, 27 2009). Available at SSRN: https://ssrn.com/abstract=1333869 or http://dx.doi.org/10.2139/ssrn.1333869

Fabrizio Cipollini

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni) ( email )

Viale Morgagni, 59
Florence, Florence 50134
Italy
+39 055 2751592 (Phone)
+39 055 4223560 (Fax)

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Giampiero M. Gallo (Contact Author)

Corte dei Conti - Italian Court of Audits ( email )

viale Mazzini
Roma, Roma 00195
Italy

Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti" ( email )

Viale G.B. Morgagni, 59
Florence, 50134
Italy
0039 055 2751 591 (Phone)
0039 055 4223560 (Fax)

HOME PAGE: http://www.disia.unifi.it/gallog

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