eastlight wrote:Hi trubador,
If I have two return series (r1 r2) and two exogenous variables (i1 i2), I want to let i1 be the exogenous variable of r1, and let i2 be the exogenous variable of r2.
However, if we put "Return series: r1 r2"; and "Exogenous variables in the variance equation: i1 i2", then both i1 and i2 will be exogenous variables for r1, and both i1 and i2 will be exogenous variables for r2.
How could we solve this problem? Thanks
I do not think this is actually a problem. If you like, you can build univariate ARIMA models at the outset and then feed the residuals to dccgarch11 add-in. In that case, however, the estimation will become a 3-step procedure. Or, you can use both of the regressors for each dependent variable. If any of the regressors are orthogonal (unrelated) to the dependent variable(s), then the variance explained by that regressor will be close to zero.