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Multivariate normal mixture GARCH

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  • Haas, Markus
  • Mittnik, Stefan
  • Paolella, Marc S.

Abstract

We present a multivariate generalization of the mixed normal GARCH model proposed in Haas, Mittnik, and Paolella (2004a). Issues of parametrization and estimation are discussed. We derive conditions for covariance stationarity and the existence of the fourth moment, and provide expressions for the dynamic correlation structure of the process. These results are also applicable to the single-component multivariate GARCH(p, q) model and simplify the results existing in the literature. In an application to stock returns, we show that the disaggregation of the conditional (co)variance process generated by our model provides substantial intuition, and we highlight a number of findings with potential significance for portfolio selection and further financial applications, such as regime-dependent correlation structures and leverage effects.

Suggested Citation

  • Haas, Markus & Mittnik, Stefan & Paolella, Marc S., 2006. "Multivariate normal mixture GARCH," CFS Working Paper Series 2006/09, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:200609
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    References listed on IDEAS

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    Cited by:

    1. Haas, Markus & Mittnik, Stefan, 2008. "Multivariate regimeswitching GARCH with an application to international stock markets," CFS Working Paper Series 2008/08, Center for Financial Studies (CFS).
    2. Chung, Sang-Kuck, 2009. "Bivariate mixed normal GARCH models and out-of-sample hedge performances," Finance Research Letters, Elsevier, vol. 6(3), pages 130-137, September.
    3. Haas, Markus & Mittnik, Stefan & Paolella, Marc S., 2009. "Asymmetric multivariate normal mixture GARCH," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2129-2154, April.
    4. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2008. "Dynamic Stock Market Interactions between the Canadian, Mexican, and the United States Markets: The NAFTA Experience," Working papers 2008-49, University of Connecticut, Department of Economics.

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    More about this item

    Keywords

    Conditional Volatility; Regime-dependent Correlations; Leverage Effect; Multivariate GARCH; Second-order Dependence;
    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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