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Effects of Level Outliers on the Identification and Estimation of GARCH Models

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Author Info
E. Ruiz
M.A. Carnero
D. Pereira

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Abstract

In this paper, we study the effects caused by the presence of outliers on the identification and estimation of GARCH models. First, we derive the asymptotic biases of the sample autocorrelations of squared observations and their effects on some popular homoscedasticity tests when uncorrelated GARCH series are contaminated by level outliers. Then, we obtain the asymptotic biases of the OLS estimates of the parameters of ARCH(p) models and analyze their finite sample behavior by means of extensive Monte Carlo experiments. The finite sample results are also extended to ML estimates of ARCH(p) and GARCH(1,1) models. The results are illustrated analyzing real series of financial ret

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Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 21.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:21

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Related research
Keywords: Autocorrelations; Heteroscedasticity testing; Maximum Likelihood; Ordinary Least Squares;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lumsdaine, Robin L. & Ng, Serena, 1999. "Testing for ARCH in the presence of a possibly misspecified conditional mean," Journal of Econometrics, Elsevier, vol. 93(2), pages 257-279, December. [Downloadable!] (restricted)
    Other versions:
  2. J. Hodrick Robert, 1986. "Comment," Econometric Reviews, Taylor and Francis Journals, vol. 5(2), pages 253-260. [Downloadable!] (restricted)
  3. Lee, John H. H., 1991. "A Lagrange multiplier test for GARCH models," Economics Letters, Elsevier, vol. 37(3), pages 265-271, November. [Downloadable!] (restricted)
  4. Jurgen A. Doornik & Marius Ooms, 2005. "Outlier Detection in GARCH Models," Economics Papers 2005-W24, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
    Other versions:
  5. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August. [Downloadable!] (restricted)
  6. Tim Bollerslev & Jeffrey Wooldridge, 1992. "Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariances," Econometric Reviews, Taylor and Francis Journals, vol. 11(2), pages 143-172. [Downloadable!] (restricted)
  7. J. S. Deeble, 1986. "Comment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 19(3), pages 73-74. [Downloadable!] (restricted)
  8. Lee, Sang-Won & Hansen, Bruce E., 1994. "Asymptotic Theory for the Garch(1,1) Quasi-Maximum Likelihood Estimator," Econometric Theory, Cambridge University Press, vol. 10(01), pages 29-52, March. [Downloadable!]
  9. Tim Bollerslev & Robert F. Engle & Daniel B. Nelson, 1993. "ARCH Models," University of California at San Diego, Economics Working Paper Series 93-49, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
    • Bollerslev, Tim & Engle, Robert F. & Nelson, Daniel B., 1986. "Arch models," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 49, pages 2959-3038 Elsevier. [Downloadable!] (restricted)
  10. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Aggarwal, Reena & Inclan, Carla & Leal, Ricardo, 1999. "Volatility in Emerging Stock Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 33-55, March. [Downloadable!]
  12. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  13. van Dijk, Dick & Franses, Philip Hans & Lucas, Andre, 1999. "Testing for ARCH in the Presence of Additive Outliers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 539-62, Sept.-Oct. [Downloadable!]
    Other versions:
  14. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Esther Ruiz & Helena Veiga, 2006. "Modelling Long-Memory Volatilities With Leverage Effect: Almsv Versus Fiegarch," Statistics and Econometrics Working Papers ws066016, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
    Other versions:
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