Small Sample Properties of Copula-GARCH Modelling: A Monte Carlo Study

Arbeitspapier

Copula-GARCH models have been recently proposed in the financial literature as a statistical tool to build flexible multivariate distributions. Our extensive simulation studies investigate the small sample properties of these models and examine how misspecification in the marginals may affect the estimation of the dependence function represented by the copula. We show that the use of normal marginals when the true Data Generating Process is leptokurtic or asymmetric, produces negatively biased estimates of the normal copula correlations. A striking result is that these biases reach their highest value when correlations are strongly negative, and viceversa. This result remains unchanged with both positively skewed and negatively skewed data, while no biases are found if the variables are uncorrelated. Besides, the effect of marginals asymmetry on correlations is smaller than that of leptokurtosis. We finally analyse the performance of these models in terms of numerical convergence and positive definiteness of the estimated copula correlation matrix.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Quaderni di Dipartimento ; No. 093

Classification and Topics

• Classification: Wirtschaft ; Statistical Simulation Methods: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Model Construction and Estimation ; Computational Techniques; Simulation Modeling
• Subject: Copulas ; Copula-GARCH models ; Maximum Likelihood ; Simulation ; Small Sample Properties

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bianchi, Carluccio ; Fantazzini, Dean ; De Giuli, Maria Elena ; Maggi, Mario
• Event: Veröffentlichung
• (who): Università degli Studi di Pavia, Dipartimento di Economia Politica e Metodi Quantitativi (EPMQ)
• (where): Pavia
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/95309
• Last update: 10.03.2025, 11:44 AM CET