ARCH/GARCH with persistent covariate: Asymptotic theory of MLE
AbstractThe paper considers a volatility model which introduces a persistent, integrated or near-integrated, covariate to the standard GARCH(1, 1) model. For such a model, we derive the asymptotic theory of the quasi-maximum likelihood estimator. In particular, we establish consistency and obtain limit distribution. The limit distribution is generally non-Gaussian and represented as a functional of Brownian motions. However, it becomes Gaussian if the covariate has innovation uncorrelated with the squared innovation of the model or the volatility function is linear in parameter. We provide a simulation study to demonstrate the relevance and usefulness of our asymptotic theory.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Econometrics.
Volume (Year): 167 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/jeconom
ARCH; GARCH; Persistent covariate; Maximum likelihood estimator; Asymptotic distribution theory;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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