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Testing the Constancy of Conditional Correlations in Multivariate GARCH-type Models (Extended Version with Appendix)

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  • Anne Péguin-Feissolle

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Bilel Sanhaji

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

We introduce two multivariate constant conditional correlation tests that require little knowledge of the functional relationship determining the conditional correlations. The first test is based on artificial neural networks and the second one is based on a Taylor expansion of each unknown conditional correlation. These new tests can be seen as general misspecification tests of a large set of multivariate GARCH-type models. We investigate the size and the power of these tests through Monte Carlo experiments. Moreover, we study their robustness to non-normality by simulating some models such as the GARCH−t and Beta−t−EGARCH models. We give some illustrative empirical examples based on financial data.

Suggested Citation

  • Anne Péguin-Feissolle & Bilel Sanhaji, 2015. "Testing the Constancy of Conditional Correlations in Multivariate GARCH-type Models (Extended Version with Appendix)," Working Papers halshs-01133751, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01133751
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01133751
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    1. Anne Péguin-Feissolle & Bilel Sanhaji, 2016. "Tests of the Constancy of Conditional Correlations of Unknown Functional Form in Multivariate GARCH Models," Annals of Economics and Statistics, GENES, issue 123-124, pages 77-101.

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    More about this item

    Keywords

    Taylor expansion; multivariate GARCH; neural network;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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