The focus of this article is using dynamic correlation models for the calculation of minimum variance hedge ratios between pairs of assets. Finding an optimal hedge requires not only knowledge of the variability of both assets, but also of the co-movement between the two assets. For this...

We propose various specification tests for Hawkes models based on the Lagrange Multiplier (LM) principle. Hawkes models can be used to model the occurrence of extreme events in financial markets. Our specific testing focus is on extending a univariate model to a multivariate model, that is, we...

An early development in testing for causality (technically, Granger non-causality) in the conditional variance (or volatility) associated with financial returns, was the portmanteau statistic for non-causality in variance of Cheng and Ng (1996). A subsequent development was the Lagrange...

This paper develops a Markov-Switching vector autoregressive model that allows for imperfect synchronization of cyclical regimes in multiple variables, due to phase shifts of a single common cycle. The model has three key features: (i) the amount of phase shift can be different across regimes...

The purpose of the paper is to show that univariate GARCH is not a special case of multivariate GARCH, specifically the Full BEKK model, except under parametric restrictions on the off-diagonal elements of the random coefficient autoregressive coefficient matrix, provides the regularity...

In this paper we test for (Generalized) AutoRegressive Conditional Heteroskedasticity [(G)ARCH] in daily data on 22 exchange rates and 13 stock market indices using the standard Lagrange Multiplier [LM] test for GARCH and a LM test that is resistant to patches of additive outliers. The data span...

In a Bayesian analysis, different models can be compared on the basis of theexpected or marginal likelihood they attain. Many methods have been devised to compute themarginal likelihood, but simplicity is not the strongest point of most methods. At the sametime, the precision of methods is often...

One of the most popular univariate asymmetric conditional volatility models is the exponential GARCH (or EGARCH) specification. In addition to asymmetry, which captures the different effects on conditional volatility of positive and negative effects of equal magnitude, EGARCH can also...