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Estimation of temporally aggregated multivariate GARCH models

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  • Hafner, C.M.
  • Rombouts, J.V.K.

Abstract

This paper investigates the performance of quasi maximum likelihood (QML) and nonlinear least squares (NLS) estimation applied to temporally aggregated GARCH models. Since these are known to be only weak GARCH, the conditional variance of the aggregated process is in general not known. Thus, one major condition that is often used in proving the consistency of QML, the correct specification of the first two moments, is absent. Indeed, our results suggest that QML is not consistent, with a substantial bias if both the initial degree of persistence and the aggregation level are high. In other cases, QML might be taken as an approximation with only a small bias. Based on results for univariate GARCH models, NLS is likely to be consistent, although inefficient, for weak GARCH models. Our simulation study reveals that NLS does not reduce the bias of QML in considerably large samples. As the variation of NLS estimates is much higher than that of QML, one would clearly prefer QML in most practical situations. An empirical example illustrates some of the results.

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Bibliographic Info

Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 2004-30.

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Date of creation: 12 Aug 2004
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Handle: RePEc:ems:eureir:1480

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Keywords: multivariate GARCH; temporal aggregation; weak GARCH;

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  1. Comte, F. & Lieberman, O., 2003. "Asymptotic theory for multivariate GARCH processes," Journal of Multivariate Analysis, Elsevier, Elsevier, vol. 84(1), pages 61-84, January.
  2. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, Elsevier, vol. 4(2-3), pages 115-158, June.
  3. BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen VK, . "Multivariate GARCH models: a survey," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1847, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. HAFNER, Christian & ROMBOUTS, Jeroen, 2003. "Semiparametric multivariate GARCH models," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2003003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Drost, F.C. & Nijman, T.E., 1990. "Temporal aggregation of GARCH processes," Discussion Paper, Tilburg University, Center for Economic Research 1990-66, Tilburg University, Center for Economic Research.
  6. Whitney K. Newey & Douglas G. Steigerwald, 1997. "Asymptotic Bias for Quasi-Maximum-Likelihood Estimators in Conditional Heteroskedasticity Models," Econometrica, Econometric Society, Econometric Society, vol. 65(3), pages 587-600, May.
  7. Francq, Christian & Zako an, Jean-Michel, 2000. "Estimating Weak Garch Representations," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 16(05), pages 692-728, October.
  8. Christian M. Hafner, 2003. "Fourth Moment Structure of Multivariate GARCH Models," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 1(1), pages 26-54.
  9. Jeantheau, Thierry, 1998. "Strong Consistency Of Estimators For Multivariate Arch Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 14(01), pages 70-86, February.
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Cited by:
  1. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
  2. SILVESTRINI, Andrea & VEREDAS, David, 2005. "Temporal aggregation of univariate linear time series models," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2005059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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