Robust M-estimation of multivariate GARCH models

In empirical work on multivariate financial time series, it is common to postulate a Multivariate GARCH model. We show that the popular Gaussian quasi-maximum likelihood estimator of MGARCH models is very sensitive to outliers in the data. We propose to use robust M-estimators and provide asymptotic theory for M-estimators of MGARCH models. The Monte Carlo study and empirical application document the good robustness properties of the M-estimator with a fattailed Student t loss function and volatility models with the property of bounded innovation propagation. JEL classification: C13; C32; C51

• Type: Journal
• Year: 2010
• Where: CSDA
• Authors: Kris Boudt, Christophe Croux
• Keywords: CSDA 2010, MGARCH Models, Multivariate Financial Time, Multivariate GARCH Model