Carnero, M.A. and Eratalay, M.H.
Studies in Nonlinear Dynamics & Econometrics – 18 (2014) 339-365

Keywords: Volatility Spillovers, Financial Markets

Abstract: This paper analyzes the performance of multiple steps estimators of Vector Autoregressive Multivariate Conditional Correlation GARCH models by means of Monte Carlo experiments. We show that if innovations are Gaussian, estimating the parameters in multiple steps is a reasonable alternative to the maximization of the full likelihood function. Our results also suggest that for the sample sizes usually encountered in financial econometrics, the differences between the volatility and correlation estimates obtained with the more efficient estimator and the multiple steps estimators are negligible. However, this does not seem to be the case if the distribution is a Student-t.