The RATS Software Forum

If simulating the dcc model works in this case, then how to introduce shocks (positive and/or negative) to the model? Actually, I have got a function in R (since i am novice in RATS) for dcc model simulation (though i am not sure whether it fits for this case?) in which it simulates the estimated mo...

Hi Tom, thanks. But what do we mean by simulations and is there any method to do that?. Could you please elaborate this point in details. There is a generalized impulse response function by Koop et al. (1996) and this model is used as correlation impulse function by Sevi and Pen (2009,6) in which th...

Thank you Tom for your suggestion all the way to now. For hypothesis testing, I need to check how negative (positive) return shocks (both individually and jointly) affect conditional covariances and therefore, risk premium. The effects of any shocks can be identified as the changes in average covari...

Instead of AR(1) term in equation (1)`, I was thinking to estimate it as egarch in-mean (or simply estimate first egarch (1,1) to get conditional variances and then regress the conditional variances on return (r_m) by fitting simple regression/regression with ARIMA errors, where arma lags are zeros)...

Thanks TomDoan. Actually the theoretical base was appealing at me,but their modeling seems questionable to us. In fact, I was thinking whether they transformed Q_t process (of DCC model) as an E-GARCH form, however, you have confirmed that covariance won't take a log additive form since it could be ...

Hm. Your observation was right that they generate z's by first implementing uEGARCH process. In fact, I have also found that this is how DCC GARCH model is implemented (by Engle and Kevin 2001). The z's are then transformed into correlation (in that case, covariance) matrix. By modelling this way, o...

hm. So, you prefer not to go with their egarch specification, do you?. yes, the explanation of covariance specification is vague in that equation terms are not explicitly expressed out. However, at the outset the covariance specification is appealing at me because of joint asymmetry (sign and size t...

yes, I think that they employ CC. The conditional covariance obtained from equation 8 are then used as conditional price of risk for stocks (that is, the CAPM beta). For details, please have a look at the Empirical Framework of attached file.
Looking forward to your reply.

yes, z is standardized innovation. The subscript c in each coefficient indicates that coefficients belong to covariance specification. The subscript m and i refers to market and stocks/portfolios where i=1,2,...n, respectively. The estimation is bivariate, meaning that each time two series (i.e., on...

The following estimates a multivariate E-GARCH model with a VAR(1) mean model and spillovers in the GARCH specification. This is from G. Koutmos(1996) "Modeling the Dynamic Interdependence of Major European Stock Markets", Journal of Business Finance and Accounting , Vol. 23, pp. 975-988....