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Constrained QML Estimation for Multivariate Asymmetric MEM with Spillovers: The Practicality of Matrix Inequalities

Author

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  • Karanasos, Menelaos

    (Brunel University London)

  • Xu, Yongdeng

    (Cardiff Business School)

  • Yfanti, Stavroula

    (School of Business and Economics, Loughborough University)

Abstract

In this paper, we review and generalize results on the derivation of tractable non-negativity (necessary and sufficient) conditions for N-dimensional asymmetric MEM and GARCH/HEAVY models with spillovers. We show that the non-negativity constraints are translated into simple matrix inequalities, which are easily handled. In practice, these conditions may not be ful lled. To deal with these cases, we propose a constrained QML estimation. We also obtain new theoretical results about the second moment structure and the optimal forecasts of such multivariate processes. Four empirical examples are included to show the e ectiveness of the proposed method.

Suggested Citation

  • Karanasos, Menelaos & Xu, Yongdeng & Yfanti, Stavroula, 2017. "Constrained QML Estimation for Multivariate Asymmetric MEM with Spillovers: The Practicality of Matrix Inequalities," Cardiff Economics Working Papers E2017/14, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2017/14
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    More about this item

    Keywords

    Constrained QML Estimation; GARCH; Matrix Inequalities; MEM; Multivariate Modelling; Second Moment Structure;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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