Spurious And Hidden Volatility
AbstractThis paper analyzes the effects caused by outliers on the identification and estimation of GARCH models. We show that outliers can lead to detect spurious conditional heteroscedasticity and can also hide genuine ARCH effects. First, we derive the asymptotic biases caused by outliers on the sample autocorrelations of squared observations and their effects on some homoscedasticity tests. Then, we obtain the asymptotic biases of the OLS estimates of ARCH(p) models and analyze their finite sample behaviour by means of extensive Monte Carlo experiments. The finite sample results are extended to GLS and ML estimates ARCH(p) and GARCH(1,1) models.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2004-45.
Length: 44 pages
Date of creation: Nov 2004
Date of revision:
Publication status: Published by Ivie
GARCH; Outliers; Heteroscedasticity;
Other versions of this item:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-21 (All new papers)
- NEP-ETS-2006-03-03 (Econometric Time Series)
- NEP-FMK-2006-02-24 (Financial Markets)
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