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EViews Script520170510203001
EViews Script520170510203001
monthly international stock returns, for a 1975:01 – 2016:12 sample, a total of 504 observations per series. Because so
far EViews has not implemented DCC models (but in Excel we have seen how to implement them), we simply focus on
multivariate GARCH models. The number of series is n = 5.
A simple kernel density-based analysis reveals that all the returns series display critical deviations (of the leptokurtic
type) from a Gaussian benchmark, and in particular fat tails – that may be induced by the presence of volatility
clustering.
With only a minor exception for Singapore (that may require some AR(1) modelling), there is evidence or little or no
structure (i.e., serial correlation) in the raw return data. Below, I just copy the estimated ACFs for three of the five
countries, but these all tend to be similar. Therefore in what follows, we shall disregard the conditional mean function
that will be set to a constant (note: in the case of monthly data, it is implausible that the monthly mean be zero).
Also cross-serial correlations (i.e., correlations that indicate whether lags of some variables predict the future of
another variable) tend to be small, not significant, and in fact much less than 5% of them is significant. This further
corroborates our decision to disregard the conditional mean function that will be set to a constant.
Constant correlations!