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Rational GARCH model: An empirical test for stock returns

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  • Takaishi, Tetsuya

Abstract

We propose a new ARCH-type model that uses a rational function to capture the asymmetric response of volatility to returns, known as the “leverage effect”. Using 10 individual stocks on the Tokyo Stock Exchange and two stock indices, we compare the new model with several other asymmetric ARCH-type models. We find that according to the deviance information criterion, the new model ranks first for several stocks. Results show that the proposed new model can be used as an alternative asymmetric ARCH-type model in empirical applications.

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  • Takaishi, Tetsuya, 2017. "Rational GARCH model: An empirical test for stock returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 473(C), pages 451-460.
    • Handle: RePEc:eee:phsmap:v:473:y:2017:i:c:p:451-460
    DOI: 10.1016/j.physa.2017.01.011
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    References listed on IDEAS

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    1. Tetsuya Takaishi, 2009. "Bayesian Inference on QGARCH Model Using the Adaptive Construction Scheme," Papers 0907.5276, arXiv.org.
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    3. Ting Ting Chen & Tetsuya Takaishi, 2013. "Empirical Study of the GARCH model with Rational Errors," Papers 1312.7057, arXiv.org.
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    Cited by:

    1. Takaishi, Tetsuya, 2018. "Bias correction in the realized stochastic volatility model for daily volatility on the Tokyo Stock Exchange," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 500(C), pages 139-154.
    2. Gzyl, Henryk & ter Horst, Enrique & Molina, Germán, 2019. "A model-free, non-parametric method for density determination, with application to asset returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 517(C), pages 210-221.
    3. Noureddine Benlagha & Wael Hemrit, 2018. "The Dynamic and Dependence of Takaful and Conventional Stock Return Behaviours: Evidence from the Insurance Industry in Saudi Arabia," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(4), pages 285-323, December.
    4. Gong, Xu & Lin, Boqiang, 2019. "Modeling stock market volatility using new HAR-type models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 516(C), pages 194-211.
    5. Tetsuya Takaishi, 2017. "Statistical properties and multifractality of Bitcoin," Papers 1707.07618, arXiv.org, revised May 2018.
    6. Veysel Ulusoy & Caner zdurak, 2018. "The Impact of Oil Price Volatility to Oil and Gas Company Stock Returns and Emerging Economies," International Journal of Energy Economics and Policy, Econjournals, vol. 8(1), pages 144-158.
    7. Takaishi, Tetsuya, 2018. "Statistical properties and multifractality of Bitcoin," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 506(C), pages 507-519.
    8. Tetsuya Takaishi, 2021. "Time-varying properties of asymmetric volatility and multifractality in Bitcoin," Papers 2102.07425, arXiv.org.

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