Template-type: ReDIF-Paper 1.0
Author-Name: David E. Allen
Author-Workplace-Name: School of Mathematics and Statistics, University of Sydney, Centre for Applied Finance, University of South Australia, and 
	School of Business and Law, Edith Cowan University.
Author-Name:
 Michael McAleer
Author-Workplace-Name:
 Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of 
	Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of 
	Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.
Title: Theoretical and Empirical Differences Between Diagonal and Full BEKK for Risk Management
Abstract: The purpose of the paper is to explore the relative biases in the estimation of the Full BEKK model as compared with the Diagonal BEKK 
	model, which is used as a theoretical and empirical benchmark. Chang and McAleer [4] show that univariate GARCH is not a special case of 
	multivariate GARCH, specifically, the Full BEKK model, and demonstrate that Full BEKK which, in practice, is estimated almost exclusively, 
	has no underlying stochastic process, regularity conditions, or asymptotic properties. Diagonal BEKK (DBEKK) does not suffer from these 
	limitations, and hence provides a suitable benchmark. We use simulated financial returns series to contrast estimates of the conditional 
	variances and covariances from DBEKK and BEKK. The results of non-parametric tests suggest evidence of considerable bias in the Full BEKK 
	estimates. The results of quantile regression analysis show there is a systematic relationship between the two sets of estimates as we 
	move across the quantiles. Estimates of conditional variances from Full BEKK, relative to those from DBEKK, are lower in the left tail 
	and higher in the right tail.
Classification-JEL: C13, C21, C58.
Keywords: DBEKK, BEKK, Regularity Conditions, Asymptotic Properties, Non-Parametric, Bias, Qantile regression.
Length: 29 pages 
Creation-Date: 2017-07
Number: 2017-22
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1722.txt
File-URL: https://eprints.ucm.es/id/eprint/44631/1/1722.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1722