comVol function

Common Volatility

Compute the principal volatility components based on the residuals of a VAR(p) model.

comVol(rtn, m = 10, p = 1, stand = FALSE)

Arguments

• rtn: A T-by-k data matrix of k-dimensional asset returns
• m: The number of lags used to compute generalized cross-Kurtosis matrix
• p: VAR order for the mean equation
• stand: A logical switch to standardize the returns

Details

Perform a VAR(p) fit, if any. Then, use the residual series to perform principal volatility component analysis. The ARCH test statistics are also computed for the sample principal components

Returns

• residuals: The residuals of a VAR(p) fit

• values: Eigenvalues of the principal volatility component analysis

• vectors: Eigenvectors of the principal volatility component analysis

• M: The transformation matrix

References

Tsay (2014, Chapter 7)

Author(s)

Ruey S. Tsay and Y.B. Hu

Examples

data("mts-examples",package="MTS")
zt=diffM(log(qgdp[,3:5]))
m1=comVol(zt,p=2)
names(m1)