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Hello!

This question regards estimations in Eviews 7.

Im currently trying to estimate a diagonal BEKK-model with data consisting of two different financial series. When I run the VAR(1) model and order it by variables i get the following

A = C(1)*A(-1) + C(2)*B(-1) + C(3)

B = C(4)*A(-1) + C(5)*B(-1) + C(6)

Then when I try to estimate the equation with diag-BEKK it gives me two different errors (only one displayed each time i try)

1. "No valid observations in equation A = C(1)*A(-1) + C(2)*B(-1) + C(3)"

2. Near singular matrix

I have trouble interpreting what the first error comes from since all the observations in A are valid.

The second error of course indicates that the series are linear combinations of each other, which is possible. However i have executed the same estimation with one of the series on nonsense random numbers and Eviews still tells me "near singular matrix".

Could someone please help me explain what I am doing wrong?

I have attached the workfile

Thanks in advance!

don quixote

I get...


System: E
Estimation Method: ARCH Maximum Likelihood (Marquardt)
Covariance specification: Diagonal BEKK
Date: 04/23/12 Time: 14:54
Sample: 4/01/2002 3/26/2012
Included observations: 2606
Total system (balanced) observations 5212
Presample covariance: backcast (parameter =0.7)
Convergence achieved after 78 iterations

Coefficient Std. Error z-Statistic Prob.

C(1) -0.345363 0.055393 -6.234815 0.0000
C(2) 0.341402 0.050790 6.721766 0.0000
C(3) 7.33E-05 9.35E-05 0.783353 0.4334
C(4) 0.053304 0.058779 0.906856 0.3645
C(5) -0.059335 0.055320 -1.072577 0.2835
C(6) 7.26E-05 9.69E-05 0.748752 0.4540

Variance Equation Coefficients

C(7) 1.83E-07 1.90E-08 9.636060 0.0000
C(8) 1.89E-07 1.65E-08 11.44972 0.0000
C(9) 2.01E-07 1.71E-08 11.71918 0.0000
C(10) 0.201087 0.004807 41.83607 0.0000
C(11) 0.201092 0.005068 39.67935 0.0000
C(12) 0.978879 0.000996 983.2859 0.0000
C(13) 0.978849 0.000940 1041.545 0.0000

Log likelihood 22961.03 Schwarz criterion -17.58243
Avg. log likelihood 4.405417 Hannan-Quinn criter. -17.60109
Akaike info criterion -17.61169


Equation: A = C(1)*A(-1) + C(2)*B(-1) + C(3)
R-squared 0.021354 Mean dependent var -4.25E-05
Adjusted R-squared 0.020602 S.D. dependent var 0.007236
S.E. of regression 0.007161 Sum squared resid 0.133481
Durbin-Watson stat 1.932770

Equation: B = C(4)*A(-1) + C(5)*B(-1) + C(6)
R-squared -0.003433 Mean dependent var -3.57E-05
Adjusted R-squared -0.004204 S.D. dependent var 0.007880
S.E. of regression 0.007896 Sum squared resid 0.162298
Durbin-Watson stat 1.822000


Covariance specification: Diagonal BEKK
GARCH = M + A1*RESID(-1)*RESID(-1)'*A1 + B1*GARCH(-1)*B1
M is an indefinite matrix
A1 is a diagonal matrix
B1 is a diagonal matrix

Transformed Variance Coefficients

Coefficient Std. Error z-Statistic Prob.

M(1,1) 1.83E-07 1.90E-08 9.636060 0.0000
M(1,2) 1.89E-07 1.65E-08 11.44972 0.0000
M(2,2) 2.01E-07 1.71E-08 11.71918 0.0000
A1(1,1) 0.201087 0.004807 41.83607 0.0000
A1(2,2) 0.201092 0.005068 39.67935 0.0000
B1(1,1) 0.978879 0.000996 983.2859 0.0000
B1(2,2) 0.978849 0.000940 1041.545 0.0000

Thank you very much for your response!

When you estimated the BEKK model, did you go through the same steps as i did or am i doing something wrong?

don quixote

I just created the system by copying the equations you provided. Clicked on Estimate, then selected BEKK. I wasn't sure if you wanted any other option changes so I just used the defaults...

Right! And when I create a system with the equations posted above and try to estimate a BEKK, I get "near singular matrix" or "no valid observations..".

Does this imply that something is wrong with my Eviews?

don quixote

Starting values?

Or perhaps version. What's the date on your copy of EViews?

Since i'm using the exact same data as posted in the workfile i guess it must be something with the verision?

Im using Eviews 7.1

don quixote

Or perhaps your estimation settings. What's the build date of your copy of EViews 7.1 (Help/About EViews). I'd recommend updating and then trying again. If you're up-to-date we see if we can figure this out...

I updated my verision of Eviews and now it works. Thank you very much for your answers!

don quixote