[R-SIG-Finance] rugarch gives two different results based on the same model…how is that even possible?

[alexios galanos]

I run the code you provided and obtain the following results related to the external parameters:


Case 1 (x1,x2)
# x2 is second

            Estimate   Std. Error       t value  Pr(>|t|)
mxreg1  1.6724148 1.203377e-01  1.389767e+01 0.0000000
mxreg2  2.5310286 1.878833e-02  1.347128e+02 0.0000000

Case 2 (x2,x1)
# i.e. x2 is now first

mxreg1  2.5225382  0.04292725  58.7631024 0.000000e+00
mxreg2  1.6782986  0.12769622  13.1428990 0.000000e+00

Small differences in the coefficients are the result of the optimizer. There may be an issues in the
way starting parameters are being generated based on some recent input from Josh Ulrich (still to investigate) 
and related to arima0 (used to generate start parameters), but otherwise don’t see a large problem at first glance.

Alexios

> On Aug 19, 2018, at 5:46 PM, GALIB KHAN <ghk18 using scarletmail.rutgers.edu> wrote:
> 
> Recently I have discovered a problem with a package called rugarch that
> creates arma-garch models. The issue is that if you literally change the
> positions of the x variables (external regressors) then you get two
> completely different results.
> 
> In other words:
> 
>   - model1 = (arma(2,2) + garch(1,0) + x1 + x2)
>   - model2 = (arma(2,2) + garch(1,0) + x2 + x1)
>   - rugarch's output is essentially saying that model1 != model2
>   - When the correct result should be model1 == model2
> 
> I may not know a lot of statistics but I know for a fact that if you move
> the x variables around, the output should still be the same.
> 
> Am I wrong on this?
> 
> Here's my stack exchange post that shows a generic R script proving my
> point: Should the positioning of the external regressors change the output
> of arma-garch? (Possible rugarch bug/error)
> <https://stackoverflow.com/questions/51900177/should-the-positioning-of-the-external-regressors-change-the-output-of-arma-garc>
> 
> Any feedback is welcomed.
> 
> Thanks
> 
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