Simultaneously Modeling Conditional Heteroskedasticity And Scale Change
AbstractThis paper proposes a semiparametric approach by introducing a smooth scale function into the standard generalized autoregressive conditional heteroskedastic (GARCH) model so that conditional heteroskedasticity (CH) and scale change in financial returns can be modeled simultaneously. An estimation procedure combining kernel estimation of the scale function and maximum likelihood estimation of the GARCH parameters is proposed. Asymptotic properties of the estimators are investigated in detail. It is shown that asymptotically normal, -consistent parameter estimation is available. A data-driven algorithm is developed for practical implementation. Finite sample performance of the proposal is studied through simulation. The proposal is applied to model CH and scale change in the daily S P 500 and DAX 100 returns. It is shown that both series have simultaneously significant scale change and CH.We are very grateful to the co-editor and two referees for their helpful comments and suggestions, which led to a substantial improvement of this paper. The paper was finished under the advice of Professor Jan Beran, Department of Mathematics and Statistics, University of Konstanz, Germany, and was financially supported by the Center of Finance and Econometrics (CoFE), University of Konstanz. We thank colleagues in CoFE, especially Professor Winfried Pohlmeier, for their interesting questions at a talk of the author. It was these questions that motivated the author to write this paper. Our special thanks go to Dr. Erik L ders, Department of Finance and Insurance, Laval University, and Stern School of Business, New York University, for his helpful suggestions.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Econometric Theory.
Volume (Year): 20 (2004)
Issue (Month): 03 (June)
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Other versions of this item:
- Yuanhua Feng, 2002. "Simultaneously Modelling Conditional Heteroskedasticity and Scale Change," CoFE Discussion Paper 02-12, Center of Finance and Econometrics, University of Konstanz.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
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