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Bayesian comparison of bivariate Copula-GARCH and MGARCH models

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  • Justyna Mokrzycka

    (Warsaw School of Economics)

Abstract

The aim of the study is to formally compare the explanatory power of Copula-GARCH and MGARCH models. The models are estimated for logarithmic daily rates of return of two exchange rates: EUR/PLN, USD/PLN and stock market indices: SP500, BUX. The analysis is performed within the Bayesian framework. The posterior model probabilities point to AR(1)-tSBEKK(1,1) for the exchange rates and VAR(1)-tCopula-GARCH(1,1) for the stock market indices, as the superior specifications. If the marginal sampling distributions are different in terms of tail thickness, the Copula-GARCH models have higher explanatory power than the MGARCH models.

Suggested Citation

  • Justyna Mokrzycka, 2019. "Bayesian comparison of bivariate Copula-GARCH and MGARCH models," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 11(1), pages 47-71, March.
    • Handle: RePEc:psc:journl:v:11:y:2019:i:1:p:47-71
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    References listed on IDEAS

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    More about this item

    Keywords

    Bayesian model comparison; Copula-GARCH model; Multivariate GARCH model; Monte Carlo Importance Sampling;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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