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I have 5 series for which I want to analyze volatility spillover (to and from the series) via VARX DCC GARCH for both dynamic and comtemporaneous effect. Moreover, I would like to analyze seasonal dummy effect and past return effect both in volatility and return. Here is my code-

varfit <- varxfit(data.merged.week[,c(2,4:7)],1, constant=TRUE, exogen=
                cbind(Winter= wSeason_Dummy$winter, Spring =
            wSeason_Dummy$spring, Summer=wSeason_Dummy$summer))

wnspecV <- ugarchspec(variance.model = list(model = "sGARCH",
                                       garchOrder = c(1, 1),
                                       external.regressors = as.matrix(wdummy)),
                      distribution.model ="norm",
                      mean.model = list(armaOrder = c(0,0)),     
                      include.mean=FALSE)

wnspec1 <- multispec(c(replicate(5, wnspecV)))

wvardccspecmv1 <- dccspec(uspec = wnspec1,VAR = TRUE, lag = 1,           
                           lag.criterion = c("AIC"),
                           dccOrder = c(1, 1),
                           model="DCC",
                           external.regressors = NULL,
                           distribution = "mvnorm")

wvardccfit1 <- dccfit(wvardccspecmv1, data= as.matrix (data.merged.week
                           [,c(2,4:7)],
                           solver = "solnp",
                           fit.control = list(eval.se=TRUE),
                           VAR.fit = varfit, out.sample = 1)

When I run the model, I don't see any seasonal dummy effect for mean equation. Moreover, I was expecting to get estimates and p-values for ARCH effect of one series on another series via conditional mean and variance equation (for example as A.I. Maghyereh et al. 2017 https://westminsterresearch.westminster.ac.uk/item/q3450/volatility-spillovers-and-cross-hedging-between-gold-oil-and-equities-evidence-from-the-gulf-cooperation-council-countries or as S.Kumar et al. 2019). However, I can only view one alpha1/arch for each series rather than spillover from one to another. Is there any particular way to retrieve those ARCH effects(one series on another series) of mean and variance equation? I would also like to know whether it's possible to run VARMAX DCC GARCH in R. Thanking in advance. @RichardHardy

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A DCC-GARCH model specifies the volatility of each asset as a univariate GARCH model (this is the first stage of DCC). Therefore, I am not sure whether you can actually use DCC for modelling spillovers. How can there be spillovers when the volatility of any given asset is modeled using only the past information on that particular asset? (I have seen some papers using DCC-GARCH for modelling volatility spillovers, but I have not read them. I have always wondered how they may circumvent the problem I have indicated.)

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  • $\begingroup$ This answers your second question. Since the first question is pretty much separate, I would suggest posting it separately. Also, I do not get pinged if you mention my name in the post. You'd better write a comment under some answer of mine to get my attention. $\endgroup$ – Richard Hardy Apr 1 at 12:03

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