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A Test Of The Garch(1, 1) Specification For Daily Stock Returns

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  • Ashley, Richard A.
  • Patterson, Douglas M.

Abstract

Daily financial returns (and daily stock returns, in particular) are commonly modeled as GARCH(1, 1) processes. Here we test this specification using new model evaluation technology developed by Ashley and Patterson that examines the ability of the estimated model to reproduce features of particular interest: various aspects of nonlinear serial dependence, in the present instance. Using daily returns to the CRSP equally weighted stock index, we find that the GARCH(1, 1) specification cannot be rejected; thus, this model appears to be reasonably adequate in terms of reproducing the kinds of nonlinear serial dependence addressed by the battery of nonlinearity tests used here.

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  • Ashley, Richard A. & Patterson, Douglas M., 2010. "A Test Of The Garch(1, 1) Specification For Daily Stock Returns," Macroeconomic Dynamics, Cambridge University Press, vol. 14(S1), pages 137-144, May.
    • Handle: RePEc:cup:macdyn:v:14:y:2010:i:s1:p:137-144_00
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    Cited by:

    1. Kuang-Liang Chang & Charles Ka Yui Leung, 2022. "How did the asset markets change after the Global Financial Crisis?," Chapters, in: Charles K.Y. Leung (ed.), Handbook of Real Estate and Macroeconomics, chapter 12, pages 312-336, Edward Elgar Publishing.
    2. David Iheke Okorie, 2020. "Could stock hedge Bitcoin risk(s) and vice versa?," Digital Finance, Springer, vol. 2(1), pages 117-136, September.
    3. Alok Pandey & Surya Bhushan Kumar, 2011. "Volatility Transmission from Global Stock Exchanges to India," Vision, , vol. 15(4), pages 347-360, December.

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