Advanced Search
MyIDEAS: Login to save this paper or follow this series

GARCH Estimation and Discrete Stock Prices

Contents:

Author Info

  • Amilon, Henrik

    ()
    (Department of Economics, Lund University)

Registered author(s):

    Abstract

    The continuous-state GARCH model is misspecified if applied to returns calculated from discrete price series. This paper proposes modifications of the above model for handling such cases. The focus is on the AR-GARCH framework, but the same ideas could be used for other stochastic processes as well. Using Swedish stock price data and a stochastic optimization algorithm, simulated annealing, I compare the parameter estimates and asymptotic standard errors from the approximative model and the extended models. I find small deviations between the models for longer time series and small tick sizes, but larger differences for shorter series and for larger tick size to price ratios, mainly in the conditional variance parameter estimates. None of the models provide continuous residuals. By constructing generalized residuals, I show how valid residual diagnostic and specification tests can be performed in some cases.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://swopec.hhs.se/lunewp/papers/lunewp2001_006.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Lund University, Department of Economics in its series Working Papers with number 2001:6.

    as in new window
    Length: 17 pages
    Date of creation: 30 Mar 2001
    Date of revision: 03 Aug 2001
    Handle: RePEc:hhs:lunewp:2001_006

    Contact details of provider:
    Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
    Phone: +46 +46 222 0000
    Fax: +46 +46 2224613
    Web page: http://www.nek.lu.se/en
    More information through EDIRC

    Related research

    Keywords: EM estimation; compass rose; stock return modeling; latent variables; generalized residuals;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2001_006. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.