Title: Identifying structural shocks to volatility through a proxy-MGARCH model
Authors: Jeannine Polivka - University of St.Gallen (Switzerland) [presenting]
Matthias Fengler - University of Sankt Gallen (Switzerland)
Abstract: The classical MGARCH specification for volatility modeling is extended by developing a structural MGARCH model targeting the identification of shocks and volatility spillovers in a speculative return system. Similarly to the proxy-sVAR framework, we consider auxiliary proxy variables constructed from news-related measures to identify the underlying shock system. We achieve full identification with multiple proxies by chaining Givens rotations. In an empirical application, we identify an equity, bond and currency shock. We study the volatility spillovers implied by these labelled structural shocks. Our analysis shows that symmetric spillover regimes are rejected.