2022-08-24Zeitschriftenartikel DOI: 10.3390/econometrics10030030
A Parsimonious Test of Constancy of a Positive Definite Correlation Matrix in a Multivariate Time-Varying GARCH Model
We construct a parsimonious test of constancy of the correlation matrix in the multivariate conditional correlation GARCH model, where the GARCH equations are time-varying. The alternative to constancy is that the correlations change deterministically as a function of time. The alternative is a covariance matrix, not a correlation matrix, so the test may be viewed as a general test of stability of a constant correlation matrix. The size of the test in finite samples is studied by simulation. An empirical example involving daily returns of 26 stocks included in the Dow Jones stock index is given.
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