Template-type: ReDIF-Paper 1.0
Author-Name: Massimiliano Caporin
Author-Email: massimiliano.caporin@unipd.it
Author-Workplace-Name: Department of Economic Sciences University of Padova
Author-Name: Michael McAleer
Author-Workplace-Name: Universidad Complutense de Madrid.Department of Quantitative Economics
Title: Do We Really Need Both BEKK and DCC? A Tale of Two Covariance Models
Abstract: Large and very large portfolios of financial assets are routine for many individuals 
	and organizations. The two most widely used models of conditional covariances and correlations 
	are BEKK and DCC. BEKK suffers from the archetypal "curse of dimensionality" whereas DCC does not. 
	This is a misleading interpretation of the suitability of the two models to be used in practice. 
	The primary purposes of the paper are to define targeting as an aid in estimating matrices associated 
	with large numbers of financial assets, analyze the similarities and dissimilarities between BEKK and 
	DCC, both with and without targeting, on the basis of structural derivation, the analytical forms of 
	the sufficient conditions for the existence of moments, and the sufficient conditions for consistency 
	and asymptotic normality, and computational tractability for very large (that is, ultra high) numbers 
	of financial assets, to present a consistent two step estimation method for the DCC model, and to 
	determine whether BEKK or DCC should be preferred in practical applications.
Classification-JEL: G11, G33, C32.
Keywords: Conditional correlations, Conditional covariances, Diagonal models, Forecasting,
	Generalized models, Hadamard models, Scalar models, Targeting.
Length: 26 pages
Creation-Date: 2009
Number: 2009-04
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0904.txt
File-URL: https://eprints.ucm.es/id/eprint/8590/1/0904.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0904