Econometrics Seminar - Annastiina Silvennoinen (Queensland University of Technology)

Title: Building multiplicative time-varying smooth transition conditional correlation GARCH models

Abstract: This paper explores the complete modelling process for an MTV–STCC–GARCH model. Building such nonlinear models is a data-driven process, however, recommendations on the systematic approach using statistical inference can be made. The focus is first on the deterministic components of the model. Specification tests for the univariate parts of the model draw from the authors’ earlier work. A new contribution is the specification test for the multivariate part, that is, the correlation component. Simulation studies provide support for the robustness of the proposed model building approach. The full estimation procedure is also laid out, followed by misspecification tests for the purpose of model evaluation. The application of the proposed methodology to Australian four largest banks illustrates the modelling cycle.