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The limiting properties of the QMLE in a general class of asymmetric volatility models

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  • Christian M. Dahl
  • Emma M. Iglesias

    ()
    (School of Economics and Management, University of Aarhus, Denmark and CREATES)

Abstract

In this paper we analyze the limiting properties of the estimated parameters in a general class of asymmetric volatility models which are closely related to the traditional exponential GARCH model. The new representation has three main advantages over the traditional EGARCH: (1) It allows a much more flexible representation of the conditional variance function. (2) It is possible to provide a complete characterization of the asymptotic distribution of the QML estimator based on the new class of nonlinear volatility models, something which has proven very difficult even for the traditional EGARCH. (3) It can produce asymmetric news impact curves where, contrary to the traditional EGARCH, the resulting variances do not excessively exceed the ones associated with the standard GARCH model, irrespectively of the sign of an impact of moderate size. Furthermore, the new class of models considered can create a wide array of news impact curves which provide the researcher with a richer choice set relative to the traditional. We also show in a Monte Carlo experiment the good finite sample performance of our asymptotic theoretical results and we compare them with those obtained from a parametric and the residual based bootstrap. Finally, we provide an empirical illustration.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2008-38.

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Length: 36
Date of creation: 04 Jul 2008
Date of revision:
Handle: RePEc:aah:create:2008-38

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Asymmetric volatility models; Asymmetric news impact curves; Quasi maximum likelihood estimation; Asymptotic Theory; Bootstrap;

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  1. Søren Tolver Jensen & Anders Rahbek, 2004. "Asymptotic Normality of the QMLE Estimator of ARCH in the Nonstationary Case," Econometrica, Econometric Society, Econometric Society, vol. 72(2), pages 641-646, 03.
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  8. Corradi, Valentina & Iglesias, Emma M., 2008. "Bootstrap refinements for QML estimators of the GARCH(1,1) parameters," Journal of Econometrics, Elsevier, vol. 144(2), pages 500-510, June.
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Cited by:
  1. repec:imd:wpaper:wp2010-25 is not listed on IDEAS
  2. Genaro Sucarrat & Alvaro Escribano, 2010. "The power log-GARCH model," Economics Working Papers we1013, Universidad Carlos III, Departamento de Economía.
  3. Genaro Sucarrat & Alvaro Escribano, 2009. "Automated financial multi-path GETS modelling," Economics Working Papers we093620, Universidad Carlos III, Departamento de Economía.

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