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Re: VAR(1)-BEKK-GARCH(1,1) Model

Unread postPosted: Thu Jan 27, 2022 12:42 pm
by TomDoan
Is the mean return shock ever defined? It should be (by construction) pretty close to zero if it is just what you would think.

Re: VAR(1)-BEKK-GARCH(1,1) Model

Unread postPosted: Thu Jan 27, 2022 3:44 pm
by jack
This is how the authors define it:
Image

Re: VAR(1)-BEKK-GARCH(1,1) Model

Unread postPosted: Fri Jan 28, 2022 10:31 am
by TomDoan
That's statistical gibberish. The residuals (for any of the dependent variables) should be roughly mean zero. (Not exactly mean zero as you would see in a linear regression, but pretty close). So basically this is taking pretty much a random number with random sign, multiplying it by a constant and saying that it has some meaning. If it were mean absolute value, that would make at least some sense.