Skip to main content

Small sample properties of copula-GARCH modelling: a Monte Carlo study

Buy Article:

$51.63 plus tax (Refund Policy)


Copula-GARCH models have been recently proposed in the financial literature as a statistical tool to deal with 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 (DGP) 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.

Keywords: C15; C32; C51; C63; copula-GARCH models; copulas; maximum likelihood; simulation; small sample properties

Document Type: Research Article


Affiliations: 1: Department of Economics and Quantitative Methods,University of Pavia, University of Pavia, Via S. Felice, 5Pavia 27100, Italy 2: Moscow School of Economics, 1, Building 61, Leninskie Gory, M.V. Lomonosov MSU 119992Moscow, Russia

Publication date: November 1, 2011

More about this publication?

Access Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content
Cookie Policy
Cookie Policy
ingentaconnect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more
Real Time Web Analytics