Thresholds, news impact surfaces and dynamic asymmetric multivariate GARCH
Article first published online: 1 FEB 2011
© 2011 The Authors. Statistica Neerlandica © 2011 VVS
Volume 65, Issue 2, pages 125–163, May 2011
How to Cite
Caporin, M. and McAleer, M. (2011), Thresholds, news impact surfaces and dynamic asymmetric multivariate GARCH. Statistica Neerlandica, 65: 125–163. doi: 10.1111/j.1467-9574.2010.00479.x
- Issue published online: 8 APR 2011
- Article first published online: 1 FEB 2011
- Received: March 2010. Revised: November 2010.
- multivariate asymmetry;
- conditional variance;
- stationarity conditions;
- asymptotic theory;
- multivariate news impact curve
Dynamic Asymmetric Multivariate GARCH (DAMGARCH) is a new model that extends the Vector ARMA-GARCH (VARMA-GARCH) model of Ling and McAleer (2003) by introducing multiple thresholds and time-dependent structure in the asymmetry of the conditional variances. Analytical expressions for the news impact surface implied by the new model are also presented. 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 article 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 article also presents an empirical example to highlight the usefulness of the new model.