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Dynamic Asymmetric GARCH

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  • Massimiliano Caporin
  • Michael McAleer

Abstract

This article develops the dynamic asymmetric GARCH (or DAGARCH) model that generalizes asymmetric GARCH models such as that of Glosten, Jagannathan, and Runkle (GJR), introduces multiple thresholds, and makes the asymmetric effect time dependent. We provide the stationarity conditions for the DAGARCH model and show how GJR can be obtained as a special case. Furthermore, we derive the news impact curve implied by the DAGARCH model and demonstrate its flexibility. An application to daily stock market indices is presented to demonstrate the practical usefulness of the new model. Copyright 2006, Oxford University Press.

Suggested Citation

  • Massimiliano Caporin & Michael McAleer, 2006. "Dynamic Asymmetric GARCH," Journal of Financial Econometrics, Oxford University Press, vol. 4(3), pages 385-412.
    • Handle: RePEc:oup:jfinec:v:4:y:2006:i:3:p:385-412
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbj011
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    Citations

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    Cited by:

    1. Tim Bollerslev, 2008. "Glossary to ARCH (GARCH)," CREATES Research Papers 2008-49, Department of Economics and Business Economics, Aarhus University.
    2. Asai, Manabu & McAleer, Michael, 2008. "A Portfolio Index GARCH model," International Journal of Forecasting, Elsevier, vol. 24(3), pages 449-461.
    3. Beg, A.B.M. Rabiul Alam & Anwar, Sajid, 2012. "Sources of volatility persistence: A case study of the U.K. pound/U.S. dollar exchange rate returns," The North American Journal of Economics and Finance, Elsevier, vol. 23(2), pages 165-184.
    4. Asai, Manabu & McAleer, Michael, 2015. "Forecasting co-volatilities via factor models with asymmetry and long memory in realized covariance," Journal of Econometrics, Elsevier, vol. 189(2), pages 251-262.
    5. Carl Lönnbark, 2016. "Asymmetry with respect to the memory in stock market volatilities," Empirical Economics, Springer, vol. 50(4), pages 1409-1419, June.
    6. Massimiliano Caporin & Michael McAleer, 2011. "Thresholds, news impact surfaces and dynamic asymmetric multivariate GARCH," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 65(2), pages 125-163, May.
    7. Rituparna Sen & Pulkit Mehrotra, 2016. "Modeling Jumps and Volatility of the Indian Stock Market Using High-Frequency Data," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(1), pages 137-150, June.
    8. McAleer, Michael & Medeiros, Marcelo C., 2008. "A multiple regime smooth transition Heterogeneous Autoregressive model for long memory and asymmetries," Journal of Econometrics, Elsevier, vol. 147(1), pages 104-119, November.
    9. Ederington, Louis H. & Guan, Wei, 2013. "The cross-sectional relation between conditional heteroskedasticity, the implied volatility smile, and the variance risk premium," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3388-3400.
    10. Chorro, Christophe & Guégan, Dominique & Ielpo, Florian & Lalaharison, Hanjarivo, 2018. "Testing for leverage effects in the returns of US equities," Journal of Empirical Finance, Elsevier, vol. 48(C), pages 290-306.
    11. Dominique Guegan & Bertrand K. Hassani, 2019. "Risk Measurement," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-02119256, HAL.
    12. Mariana Petrova & Teodor Todorov, 2023. "Empirical Testing of Models of Autoregressive Conditional Heteroscedasticity Used for Prediction of the Volatility of Bulgarian Investment Funds," Risks, MDPI, vol. 11(11), pages 1-30, November.
    13. Billio, Monica & Caporin, Massimiliano, 2009. "A generalized Dynamic Conditional Correlation model for portfolio risk evaluation," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(8), pages 2566-2578.
    14. Ederington, Louis H. & Guan, Wei, 2010. "How asymmetric is U.S. stock market volatility?," Journal of Financial Markets, Elsevier, vol. 13(2), pages 225-248, May.
    15. Mazzotta, Stefano, 2008. "How important is asymmetric covariance for the risk premium of international assets?," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1636-1647, August.
    16. A. B. M. Rabiul Alam Beg & Sajid Anwar, 2014. "Detecting volatility persistence in GARCH models in the presence of the leverage effect," Quantitative Finance, Taylor & Francis Journals, vol. 14(12), pages 2205-2213, December.
    17. Lönnbark, Carl, 2017. "Long vs. short term asymmetry in volatility and the term structure of risk," Finance Research Letters, Elsevier, vol. 23(C), pages 202-209.

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