Template-type: ReDIF-Paper 1.0
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: What They Did Not Tell You About Algebraic (Non-)Existence, Mathematical (IR-)Regularity and (Non-)Asymptotic Properties of the Full BEKK Dynamic 
	Conditional Covariance Model
Abstract: Persistently high negative covariances between risky assets and hedging instruments are intended to mitigate against risk and subsequent financial 
	losses. In the event of having more than one hedging instrument, multivariate covariances need to be calculated. Optimal hedge ratios are unlikely to 
	remain constant using high frequency data, so it is essential to specify dynamic covariance models. These values can either be determined analytically or 
	numerically on the basis of highly advanced computer simulations. Analytical developments are occasionally promulgated for multivariate conditional 
	volatility models. The primary purpose of the paper is to analyse purported analytical developments for the most widely-used multivariate dynamic 
	conditional covariance model to have been developed to date, namely the Full BEKK model of Baba et al. (1985), which was published as Engle and Kroner 
	(1995). Dynamic models are not straightforward (or even possible) to translate in terms of the algebraic existence, underlying stochastic processes, 
	specification, mathematical regularity conditions, and asymptotic properties of consistency and asymptotic normality, or the lack thereof. The paper 
	presents a critical analysis, discussion, evaluation and presentation of caveats relating to the Full BEKK model, and an emphasis on the numerous dos and 
	don’ts in implementing Full BEKK in practice.
Classification-JEL: C22, C32, C51, C52, C58, C62, G32.
Keywords: Hedging, Covariances, Correlations, Existence, Mathematical regularity, Invertibility, Likelihood function, Statistical asymptotic properties, Caveats, 
	Practical implementation.
Length: 13 pages 
Creation-Date: 2019-03
Number: 2019-18
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1918.txt
File-URL: https://eprints.ucm.es/id/eprint/54810/1/1918.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1918