GARCH MODEL with multiple explanatory variables

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AfonsoRod
Posts: 40
Joined: Wed May 31, 2017 7:37 am

GARCH MODEL with multiple explanatory variables

Postby AfonsoRod » Tue May 21, 2019 3:31 pm

Dear all

I am trying to run a GARCH model with more than one explanatory variables but I am facing a lot of problems and doubts.

First, i would like to know how can we properly decide the ARCH and GARCH values to use in the model specification. I have run a GARCH(1,1) and looked to the Variance Equation. Just by looking at that I opt to use a GARCH(2,1) model, but I have no idea if this is the right thing to do.

Secondly, when performing the residuals tests I face a serious problem with auto-correlation. The results of all tests can be seen below:

    -Correlogram Q-Statistics:

cqs.jpg
cqs.jpg (143.16 KiB) Viewed 314 times


    -Correlogram Squared Residuals:

csr.jpg
csr.jpg (139.92 KiB) Viewed 314 times


    Histogram Normality Test:

hnt.PNG
hnt.PNG (13.12 KiB) Viewed 314 times

AfonsoRod
Posts: 40
Joined: Wed May 31, 2017 7:37 am

Re: GARCH MODEL with multiple explanatory variables

Postby AfonsoRod » Tue May 21, 2019 3:35 pm

    ARCH LM Test - ARCH

almt.jpg
almt.jpg (83.32 KiB) Viewed 313 times


How can I solve this problem? I have been told (in a two minute conversation) that I should run the GARCH(q,p) model with the right value of 'q' and 'p', then do something that would generate some garch values, and then run a VAR modelusing the generated GARCH values. However, looking on the internet for this, I can't find anything that may resemble this.

Can anyone help me?

I appreciate all the help in advance.

Yours sincerely,
Afonso Rodrigues


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