DAMGARCH is a new model that extends the VARMA-GARCH model of Ling and McAleer
(2003) by introducing multiple thresholds and time-dependent structure in the asymmetry of the
conditional variances. Analytical expressions for the news impact surface implied by the new model
are also presented. DAMGARCH models the shocks affecting the conditional variances on the basis
of an underlying multivariate distribution. It is possible to model explicitly asset-specific shocks
and common innovations by partitioning the multivariate density support. This paper presents the
model structure, describes the implementation issues, and provides the conditions for the existence
of a unique stationary solution, and for consistency and asymptotic normality of the quasimaximum
likelihood estimators. The paper also presents an empirical example to highlight the
usefulness of the new model.
|