Detecting outliers in multivariate volatility models: A wavelet procedure

Aurea Grane, Belen Martin-Barragan, Helena Veiga

Research output: Contribution to journalArticlepeer-review

Abstract

It is well known that outliers can affect both the estimation of parameters and volatilities when fitting a univariate GARCH-type model. Similar biases and impacts are expected to be found on correlation dynamics in the context of multivariate time series. We study the impact of outliers on the estimation of correlations when fitting multivariate GARCH models and propose a general detection algorithm based on wavelets, that can be applied to a large class of multivariate volatility models. Its effectiveness is evaluated through a Monte Carlo study before it is applied to real data. The method is both effective and reliable, since it detects very few false outliers.
Original languageEnglish
Pages (from-to)289-316
JournalSORT. Statistics and Operations Research Transactions
Volume43
Issue number2
DOIs
Publication statusPublished - 31 Dec 2019

Keywords

  • correlations
  • multivariate GARCH models
  • outliers
  • wavelets

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