Sample Question #12 (econometrics – time series)
People use the GARCH model to study volatility. Can you tell me if we can use the GARCH framework to study the correlation between two assets/time series? If so, what additional assumptions and/or adjustments must we make to the original GARCH model?
(Comment: this is a very tough question. Why? First, this material is not covered in textbooks. Second, it requires a thorough understanding of the GARCH model and which assumptions can, or cannot, be "twisted" to fit the correlation scenario.)