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

Alternative GARCH in Mean Models: An Application to the Korean Stock Market

Contents:

Author Info

  • Menelaos Karanasos
  • J. Kim

Abstract

The purpose of this paper is the theoretical and empirical comparison of alternative GARCH-in-mean models. We examine three GARCH specifications: Bollerslev's (1986) GARCH model, Taylor (1986) - Schwert's (1989) GARCH model, and Nelson's (1991) Exponential GARCH model. In addition, we employ four of the most common forms in which the time-varying variance enters the specification of the mean to determine the risk premium: the quadratic, the linear, the logarithmic and the square root one. For all the aforementioned models we give the auto/cross correlations of the process and its conditional variance. The practical implications of the results are illustrated empirically using daily data on the Korean Stock Price Index (KOSPI).

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://www.york.ac.uk/media/economics/documents/discussionpapers/2000/0025.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 00/25.

as in new window
Length:
Date of creation:
Date of revision:
Handle: RePEc:yor:yorken:00/25

Contact details of provider:
Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
Phone: (0)1904 323776
Fax: (0)1904 323759
Email:
Web page: http://www.york.ac.uk/economics/
More information through EDIRC

Related research

Keywords:

References

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.:
as in new window
  1. Campbell, John Y. & Hentschel, Ludger, 1992. "No news is good news *1: An asymmetric model of changing volatility in stock returns," Journal of Financial Economics, Elsevier, vol. 31(3), pages 281-318, June.
  2. Manolis G. Kavussanos & Amir H. Alizadeh-M, 2002. "The Expectations Hypothesis of the Term Structure and Risk Premiums in Dry Bulk Shipping Freight Markets," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 36(2), pages 267-304, May.
  3. Stilianos Fountas & Menelaos Karanasos & Marika Karanassou, . "A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback," Discussion Papers 00/24, Department of Economics, University of York.
  4. Sentana,E., 1995. "Quadratic Arch Models," Papers, Centro de Estudios Monetarios Y Financieros- 9517, Centro de Estudios Monetarios Y Financieros-.
  5. Karim Abadir, 1999. "An introduction to hypergeometric functions for economists," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(3), pages 287-330.
  6. Fraser, Patricia, 1996. "UK Excess Share Returns: Firm Size and Volatility," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(1), pages 71-84, February.
  7. Engle, Robert F. & Mustafa, Chowdhury, 1992. "Implied ARCH models from options prices," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 289-311.
  8. Moosa, Imad A. & Al-Loughani, Nabeel E., 1994. "Unbiasedness and time varying risk premia in the crude oil futures market," Energy Economics, Elsevier, vol. 16(2), pages 99-105, April.
  9. Hagerud, Gustaf E., 1997. "Specification Tests for Asymmetric GARCH," Working Paper Series in Economics and Finance 163, Stockholm School of Economics.
  10. Menelaos Karanasos, . "Prediction in ARMA models with GARCH in Mean Effects," Discussion Papers 99/11, Department of Economics, University of York.
  11. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December.
  12. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
  13. Hall, S G, 1991. "An Application of the Stochastic GARCH-in-Mean Model to Risk Premia in the London Metal Exchange," The Manchester School of Economic & Social Studies, University of Manchester, University of Manchester, vol. 59(0), pages 57-71, Supplemen.
  14. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 347-70, March.
  15. Nelson, Daniel B & Foster, Dean P, 1994. "Asymptotic Filtering Theory for Univariate ARCH Models," Econometrica, Econometric Society, Econometric Society, vol. 62(1), pages 1-41, January.
  16. Baillie, R.T. & Bollerslev, R.T., 1990. "Prediction In Dynamic Models With Time Dependent Conditional Variances," Papers, Michigan State - Econometrics and Economic Theory 8815, Michigan State - Econometrics and Economic Theory.
  17. Black, Angela & Fraser, Patricia, 1995. "U.K. Stock Returns: Predictability and Business Conditions," The Manchester School of Economic & Social Studies, University of Manchester, University of Manchester, vol. 63(0), pages 85-102, Suppl..
  18. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(1), pages 116-31, February.
  19. He, Changli & Ter svirta, Timo, 1999. "FOURTH MOMENT STRUCTURE OF THE GARCH(p,q) PROCESS," Econometric Theory, Cambridge University Press, vol. 15(06), pages 824-846, December.
  20. Hagerud, Gustaf E., 1997. "Modeling Nordic Stock Returns with Asymmetric GARCH models," Working Paper Series in Economics and Finance 164, Stockholm School of Economics.
  21. Elyasiani, Elyas & Mansur, Iqbal, 1998. "Sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate: A GARCH-M model," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 535-563, May.
  22. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, Elsevier, vol. 1(1), pages 83-106, June.
  23. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, Econometric Society, vol. 41(5), pages 867-87, September.
  24. G. William Schwert, 1990. "Why Does Stock Market Volatility Change Over Time?," NBER Working Papers 2798, National Bureau of Economic Research, Inc.
  25. Campbell, John Y., 1987. "Stock returns and the term structure," Journal of Financial Economics, Elsevier, vol. 18(2), pages 373-399, June.
  26. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
  27. Allan D. Brunner & David P. Simon, 1995. "Excess returns and risk at the long end of the Treasury market: an EGARCH-M approach," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 522, Board of Governors of the Federal Reserve System (U.S.).
  28. Baillie, Richard T & Bollerslev, Tim, 2002. "The Message in Daily Exchange Rates: A Conditional-Variance Tale," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 60-68, January.
  29. Philippe Jorion, 1988. "On Jump Processes in the Foreign Exchange and Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 1(4), pages 427-445.
  30. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
  31. Breen, William & Glosten, Lawrence R & Jagannathan, Ravi, 1989. " Economic Significance of Predictable Variations in Stock Index Returns," Journal of Finance, American Finance Association, vol. 44(5), pages 1177-89, December.
  32. Karanasos, Menelaos, 1999. "The second moment and the autocovariance function of the squared errors of the GARCH model," Journal of Econometrics, Elsevier, vol. 90(1), pages 63-76, May.
  33. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
  34. 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.
  35. Caporale, Tony & McKiernan, Barbara, 1996. "The Relationship between Output Variability and Growth: Evidence from Post War UK Data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(2), pages 229-36, May.
  36. Kroner, Kenneth F. & Lastrapes, William D., 1993. "The impact of exchange rate volatility on international trade: Reduced form estimates using the GARCH-in-mean model," Journal of International Money and Finance, Elsevier, vol. 12(3), pages 298-318, June.
  37. Chou, Ray Yeutien, 1988. "Volatility Persistence and Stock Valuations: Some Empirical Evidence Using Garch," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 3(4), pages 279-94, October-D.
  38. repec:fth:galeco:47 is not listed on IDEAS
  39. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 391-407, March.
  40. Domowitz, Ian & Hakkio, Craig S., 1985. "Conditional variance and the risk premium in the foreign exchange market," Journal of International Economics, Elsevier, vol. 19(1-2), pages 47-66, August.
  41. Hansson, Bjorn & Hordahl, Peter, 1997. " Changing Risk Premia: Evidence from a Small Open Economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 335-50, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. M. Karanasos & J. Kim, 2003. "Moments of the ARMA--EGARCH model," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 146-166, 06.
  2. Maurício Yoshinori Une & Marcelo Savino Portugal, 2005. "Can fear beat hope? A story of GARCH-in-Mean-Level effects for Emerging Market Country Risks," Econometrics, EconWPA 0509006, EconWPA.
  3. Tsatsura, Oleg, 2010. "A Smooth Transition GARCH-M Model," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 17(1), pages 45-61.

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:yor:yorken:00/25. 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: (Paul Hodgson).

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.