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On the statistical properties of multiplicative GARCH models

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  • Conrad, Christian
  • Kleen, Onno

Abstract

We examine the statistical properties of multiplicative GARCH models. First, we show that in multiplicative models, returns have higher kurtosis and squared returns have a more persistent autocorrelation function than in the nested GARCH model. Second, we extend the results of Andersen and Bollerslev (1998) on the upper bound of the R2 in a Mincer-Zarnowitz regression to the case of a multiplicative GARCH model, using squared returns as a proxy for the true but unobservable conditional variance. Our theoretical results imply that multiplicative GARCH models provide an explanation for stylized facts that cannot be captured by classical GARCH modeling.

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  • Conrad, Christian & Kleen, Onno, 2016. "On the statistical properties of multiplicative GARCH models," Working Papers 0613, University of Heidelberg, Department of Economics.
    • Handle: RePEc:awi:wpaper:0613
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    References listed on IDEAS

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    4. Karanasos, Menelaos, 1999. "The second moment and the autocovariance function of the squared errors of the GARCH model," Journal of Econometrics, Elsevier, vol. 90(1), pages 63-76, May.
    5. Heejoon Han, 2015. "Asymptotic Properties of GARCH-X Processes," Journal of Financial Econometrics, Oxford University Press, vol. 13(1), pages 188-221.
    6. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
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    8. Conrad, Christian & Schienle, Melanie, 2015. "Misspecification Testing in GARCH-MIDAS Models," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112919, Verein für Socialpolitik / German Economic Association.
    9. Conrad, Christian & Schienle, Melanie, 2015. "Misspecification Testing in GARCH-MIDAS Models," Working Papers 0597, University of Heidelberg, Department of Economics.
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