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Contemporaneous-Threshold Smooth Transition GARCH Models

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Author Info

  • Dueker Michael J.

    ()
    (Russell Investments)

  • Psaradakis Zacharias

    ()
    (Birkbeck, University of London)

  • Sola Martin

    ()
    (Birkbeck, University of London and Universidad Torcuato Di Tella)

  • Spagnolo Fabio

    ()
    (Brunei University)

Abstract

This paper proposes a contemporaneous-threshold smooth transition GARCH (or C-STGARCH) model for dynamic conditional heteroskedasticity. The C-STGARCH model is a generalization to second conditional moments of the contemporaneous smooth transition threshold autoregressive model of Dueker et al. (2007) in which the regime weights depend on the ex ante probability that a contemporaneous latent regime-specific variable exceeds a threshold value. A key feature of the C-STGARCH model is that its transition function depends on all the parameters of the model as well as on the data. The structural properties of the model are investigated, in addition to the finite-sample properties of the maximum likelihood estimator of its parameters. An application to U.S. stock returns illustrates the practical usefulness of the C-STGARCH model.

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File URL: http://www.degruyter.com/view/j/snde.2011.15.2/snde.2011.15.2.1755/snde.2011.15.2.1755.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 15 (2011)
Issue (Month): 2 (March)
Pages: 1-25

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Handle: RePEc:bpj:sndecm:v:15:y:2011:i:2:n:1

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  1. Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290.
  2. Lubrano, M., 1999. "Smooth Transition GARCH Models: a Bayesian perspective," G.R.E.Q.A.M. 99a49, Universite Aix-Marseille III.
  3. Dueker, Michael J. & Sola, Martin & Spagnolo, Fabio, 2007. "Contemporaneous threshold autoregressive models: Estimation, testing and forecasting," Journal of Econometrics, Elsevier, vol. 141(2), pages 517-547, December.
  4. Medeiros, Marcelo C. & Veiga, Alvaro, 2009. "Modeling Multiple Regimes In Financial Volatility With A Flexible Coefficient Garch(1,1) Model," Econometric Theory, Cambridge University Press, vol. 25(01), pages 117-161, February.
  5. Lanne, Markku & Saikkonen, Pentti, 2002. "Nonlinear GARCH models for highly persistent volatility," SFB 373 Discussion Papers 2002,20, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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Cited by:
  1. Kirstin Hubrich & Timo Teräsvirta, 2013. "Thresholds and Smooth Transitions in Vector Autoregressive Models," CREATES Research Papers 2013-18, School of Economics and Management, University of Aarhus.

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