Multicollinearity in GARCH Model

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Multicollinearity in GARCH Model

Postby EktaS » Wed Mar 07, 2018 5:41 am


I am estimating a time series regression model in which the dependent variable is stock returns and the two independent variables are exchange rate changes and market index returns. Independent variables are highly correlated.
In this case If i estimate GARCH model, how should i test/account for the multicollinearity. there is no VIF inbuilt in GARCH.
Does multicollinearity not an issue if we estimate GARCH? ( Would it be correct if I use market returns orthogonal to exchaneg rate changes. but if variables are more than two then it also wont work)

Please help.

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