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GMM Estimation of a Stochastic Volatility Model with Realized Volatility: A Monte Carlo Study

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  • Pierre Chausse

    (Department of Economics, University of Waterloo)

  • Dinghai Xu

    (Department of Economics, University of Waterloo)

Abstract

This paper investigates alternative generalized method of moments (GMM) estimation procedures of a stochastic volatility model with realized volatility measures. The extended model can accommodate a more general correlation structure. General closed form moment conditions are derived to examine the model properties and to evaluate the performance of various GMM estimation procedures under Monte Carlo environment, including standard GMM, principal component GMM, robust GMM and regularized GMM. An application to five company stocks and one stock index is also provided for an empirical demonstration.

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Bibliographic Info

Paper provided by University of Waterloo, Department of Economics in its series Working Papers with number 1203.

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Length: 39 pages
Date of creation: May 2012
Date of revision: May 2012
Handle: RePEc:wat:wpaper:1203

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