Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/177637 
Year of Publication: 
2017
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 17-069/III
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
The purpose of the paper is to explore the relative biases in the estimation of the Full BEKK model as compared with the Diagonal BEKK model, which is used as a theoretical and empirical benchmark. Chang and McAleer [4] show that univariate GARCH is not a special case of multivariate ARCH, specifically, the Full BEKK model, and demonstrate that Full BEKK which, in practice, is estimated almost exclusively, has no underlying stochastic process, regularity conditions, or asymptotic properties. Diagonal BEKK (DBEKK) does not suffer from these limitations, and hence provides a suitable benchmark. We use simulated financial returns series to contrast estimates of the conditional variances and covariances from DBEKK and BEKK. The results of non-parametric tests suggest evidence of considerable bias in the Full BEKK estimates. The results of quantile regression analysis show there is a systematic relationship between the two sets of estimates as we move across the quantiles. Estimates of conditional variances from Full BEKK, relative to those from DBEKK, are lower in the left tail and higher in the right tail.
Subjects: 
DBEKK
BEKK
Regularity Conditions
Asymptotic Properties
Non-Parametric
Bias
Quantile regression
JEL: 
C13
C21
C58
Document Type: 
Working Paper

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