Code for Diagonal BEKK with hedge ratios & portfolio weigh

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Code for Diagonal BEKK with hedge ratios & portfolio weigh

Unread postby curiousresearcher » Wed Jul 08, 2020 9:27 pm

Dear Sir,

Request you to please add the codes for the following paper in the replication examples, since the current respository doesnt have one to the best of my knowledge.

This paper will help cover the diagonal bekk, hedge ratios and portfolio optimization.

The paper is Katsiampa, P. (2019). Volatility co-movement between Bitcoin and Ether. Finance Research Letters, 30, 221-227.
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Re: Code for Diagonal BEKK with hedge ratios & portfolio wei

Unread postby TomDoan » Thu Jul 09, 2020 11:30 am

If they provide the data, we could do that. However, DBEKK is included in the Martin-Hurn-Harris textbook examples (MHHP790.RPF), and the hedge ratio and portfolio analysis is the same regardless of the type of GARCH model---it's a function solely of the sequence of estimated covariance matrices.
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Re: Code for Diagonal BEKK with hedge ratios & portfolio wei

Unread postby curiousresearcher » Tue Jan 19, 2021 2:31 am

TomDoan wrote:If they provide the data, we could do that. However, DBEKK is included in the Martin-Hurn-Harris textbook examples (MHHP790.RPF), and the hedge ratio and portfolio analysis is the same regardless of the type of GARCH model---it's a function solely of the sequence of estimated covariance matrices.


Dear Tom,

I am quite confused about the difference between MVHSERIES vs HMATRICES. I am sharing data for two assets (calculating optimum hedge ratios/portfolio weights for 2 assets)

1) Data tab captures the price and returns data for A and B
2) Commands used tab captures the commands used for BEKK model and sub sequence variance covariance data
3) BEKK output tab shows BEKK results
4) Variance covariance output shows variance /covariance data used for calculating portfolio weights and hedge ratios.

My research question is to use the two returns data to find out volatility linkages and then calculate optimum portfolio weights and hedge ratios. The reference paper is https://shura.shu.ac.uk/23035/3/Katsiam ... 8AM%29.pdf

Please advice if i am doing it correctly and necessary changes in codes needed and should i use HMATRICES (if yes what should be the exact codes).
Last edited by curiousresearcher on Sun Jan 31, 2021 7:12 am, edited 1 time in total.
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Re: Code for Diagonal BEKK with hedge ratios & portfolio wei

Unread postby TomDoan » Tue Jan 19, 2021 2:46 pm

curiousresearcher wrote:
TomDoan wrote:If they provide the data, we could do that. However, DBEKK is included in the Martin-Hurn-Harris textbook examples (MHHP790.RPF), and the hedge ratio and portfolio analysis is the same regardless of the type of GARCH model---it's a function solely of the sequence of estimated covariance matrices.


Dear Tom,

I am quite confused about the difference between MVHSERIES vs HMATRICES. I am sharing data for two assets (calculating optimum hedge ratios/portfolio weights for 2 assets)


MVHSERIES and HMATRICES have the same information packaged in different ways. You can get both on a single instruction if you need both ways of looking at the information. HMATRICES tends to be the more useful since most post-processing analysis (such as correlations, hedge ratios, etc.) require a calculation across components in the covariance matrix at a given point in time. MVHSERIES is mainly for use when you want to use the variance or covariances as an input back into the GARCH model.

The calculations for the time-varying hedge ratios are described at

viewtopic.php?f=11&t=3220#p16481

(Those are just pulled out of the Sadorsky paper replication). One assumes that the one number that is being displayed in the paper that you're referencing is the average across the sample of the hedge ratio, but you would need to read carefully to see if that is the case.

curiousresearcher wrote:1) Data tab captures the price and returns data for A and B
2) Commands used tab captures the commands used for BEKK model and sub sequence variance covariance data
3) BEKK output tab shows BEKK results
4) Variance covariance output shows variance /covariance data used for calculating portfolio weights and hedge ratios.

My research question is to use the two returns data to find out volatility linkages and then calculate optimum portfolio weights and hedge ratios. The reference paper is https://shura.shu.ac.uk/23035/3/Katsiam ... 8AM%29.pdf

Please advice if i am doing it correctly and necessary changes in codes needed and should i use HMATRICES (if yes what should be the exact codes).


You saved that as a CSV, which loses all the tabs but the last one.
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