A multivariate threshold varying conditional correlations model

W. KWAN, Wai Keung LI, K. W. NG

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7 Citations (Scopus)

Abstract

In this article, a multivariate threshold varying conditional correlation (TVCC) model is proposed. The model extends the idea of Engle (2002) and Tse and Tsui (2002) to a threshold framework. This model retains the interpretation of the univariate threshold GARCH model and allows for dynamic conditional correlations. Techniques of model identification, estimation, and model checking are developed. Some simulation results are reported on the finite sample distribution of the maximum likelihood estimate of the TVCC model. Real examples demonstrate the asymmetric behavior of the mean and the variance in financial time series and the ability of the TVCC model to capture these phenomena. Copyright © 2010 Taylor & Francis Group, LLC.
Original languageEnglish
Pages (from-to)20-38
JournalEconometric Reviews
Volume29
Issue number1
DOIs
Publication statusPublished - 2009

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Conditional correlation
Model checking
Finite sample distribution
Dynamic conditional correlation
Simulation
Maximum likelihood
GARCH model
Financial time series

Citation

Kwan, W., Li, W. K., & Ng, K. W. (2009). A multivariate threshold varying conditional correlations model. Econometric Reviews, 29(1), 20-38. doi: 10.1080/07474930903327260

Keywords

  • Conditional correlation
  • Multivariate TVCC model
  • Threshold
  • Volatility