Unrestricted VC-MGARCH: An extension of VC-MGARCH and evidence from financial indices

Abstract

<P>I WOULD LIKE TO INCORPORATE THE IDEA OF ALLOWING EACH COVARIANCE TERM TO VARY WITH ITS CORRESPONDING PRODUCT OF STANDARDIZED RESIDUALS AND ITS LAGGED TERM INTO THE VCMGARCH MODEL BY TSUI IN ORDER TO ALLOW FOR MORE DYNAMIC VARIATION OF THE CONDITIONAL CORRELATIONS. MY THESIS INCORPORATES ALL FOUR SERIES SO IT WILL BE TETRA-VARIATE VC-MGARCH. THE PROPOSED MODEL IS BELIEVED TO BE MORE EFFECTIVE THAN CCC-MGARCH MODEL AND VC-MGARCH MODEL. APPLYING THIS MODEL, I WOULD LIKE TO SEE HOW THE REAL ESTATE MARKET REACTS WITH OTHER EQUITY MARKETS: FINANCE, MULTI-INDUSTRY AND FOREIGN EQUITY. THE RESULTS ARE CONSISTENT WITH PREVIOUS STUDIES. THREE OUT OF FOUR INDICES, EXCEPT FOR FOREIGN EQUITY, SHOW ASYMMETRY IN THEIR CONDITIONAL VARIANCES AND ALL OF THEM ALSO SHOW THE DAY OF THE WEEK EFFECTS WITH THE SIGNIFICANT POSITIVE MONDAY EFFECT AND NEGATIVE FRIDAY EFFECT. THE PAIRWISE CORRELATIONS ARE POSITIVE FOR ALL FOUR CASES AND FLUCTUATE WITHOUT PATTERN.</P>