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arXiv · 1505.05385

The extremogram and the cross-extremogram for a bivariate GARCH(1,1) process

Muneya Matsui·Thomas Mikosch
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Abstract

In this paper, we derive some asymptotic theory for the extremogram and cross-extremogram of a bivariate GARCH(1,1) process. We show that the tails of the components of a bivariate GARCH(1,1) process may exhibit power law behavior but, depending on the choice of the parameters, the tail indices of the components may differ. We apply the theory to 5-minute return data of stock prices and foreign exchange rates. We judge the fit of a bivariate GARCH(1,1) model by considering the sample extremogram and cross-extremogram of the residuals. The results are in agreement with the iid hypothesis of the two-dimensional innovations sequence. The cross-extremograms at lag zero have a value significantly distinct from zero. This fact points at some strong extremal dependence of the components of the innovations.

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Muneya Matsui, Thomas Mikosch. 2015-05-20. The extremogram and the cross-extremogram for a bivariate GARCH(1,1) process. https://arxiv.org/abs/1505.05385

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