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GARCH model with cross-sectional volatility: GARCHX models

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  • Soosung Hwang
  • Steve Satchell

Abstract

This study introduces GARCH models with cross-sectional market volatility, which are called GARCHX models. The cross-sectional market volatility is a special case of common heteroscedasticity in asset specific returns, which is suggested by Connor and Linton (2001) as an important component in individual asset volatility. Using UK and US data, we find that daily return volatility can be better specified with GARCHX models, but GARCHX models do not necessarily perform better than conventional GARCH models in forecasting.

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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 3 ()
Pages: 203-216

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:3:p:203-216

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Citations

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Cited by:
  1. Soosung Hwang & Steve E. Satchell & Pedro L. Valls Pereira, 2004. "How Persistent is Volatility? An Answer with Stochastic Volatility Models with Markov Regime Switching State Equations," Econometric Society 2004 Latin American Meetings, Econometric Society 198, Econometric Society.
  2. Dufrénot, Gilles & Mignon, Valérie & Péguin-Feissolle, Anne, 2011. "The effects of the subprime crisis on the Latin American financial markets: An empirical assessment," Economic Modelling, Elsevier, vol. 28(5), pages 2342-2357, September.
  3. Heejoon Han & Dennis Kristensen, 2013. "Asymptotic theory for the QMLE in GARCH-X models with stationary and non-stationary covariates," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP18/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. Tim Bollerslev, 2008. "Glossary to ARCH (GARCH)," CREATES Research Papers 2008-49, School of Economics and Management, University of Aarhus.
  5. Monica Billio & Massimiliano Caporin & Michele Gobbo, 2006. "Flexible Dynamic Conditional Correlation multivariate GARCH models for asset allocation," Applied Financial Economics Letters, Taylor and Francis Journals, Taylor and Francis Journals, vol. 2(2), pages 123-130, March.

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