Efficient Method of Moments (EMM) is used to fit the standard stochastic volatility model and various extensions to several daily financial time series. EMM matches to the score of a model determined by data analysis called the score generator. Discrepancies reveal characteristics of data that stochastic volatility models cannot approximate. The two score generators employed here are Nonparametric ARCH and Nonlinear Nonparametric. With the first, the standard model is rejected, although some extensions are nearly accepted. With the second, all versions are rejected. The extensions required for an adequate fit are so elaborate that nonparametric specifications are probably more convenient.
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Paper provided by Duke University, Department of Economics in its series Working Papers with number
95-36.
Length: Date of creation: 1995 Date of revision: Publication status: Published in JOURNAL OF ECONOMETRICS, 1997, pages 159-192 Handle: RePEc:duk:dukeec:95-36
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