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On the origin of high persistence in GARCH-models

Author

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  • Krämer, Walter
  • Tameze, Baudouin
  • Christou, Konstantinos

Abstract

We show that the (Baillie and Chung, 2001) minimum distance estimates of the GARCH (1,1) model induce spurious persistence in the volatility when there are structural changes in the mean of the process.

Suggested Citation

  • Krämer, Walter & Tameze, Baudouin & Christou, Konstantinos, 2012. "On the origin of high persistence in GARCH-models," Economics Letters, Elsevier, vol. 114(1), pages 72-75.
    • Handle: RePEc:eee:ecolet:v:114:y:2012:i:1:p:72-75
    DOI: 10.1016/j.econlet.2011.09.012
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    References listed on IDEAS

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    1. Kramer, Walter & Azamo, Baudouin Tameze, 2007. "Structural change and estimated persistence in the GARCH(1,1)-model," Economics Letters, Elsevier, vol. 97(1), pages 17-23, October.
    2. Richard T. Baillie & Huimin Chung, 2001. "Estimation of GARCH Models from the Autocorrelations of the Squares of a Process," Journal of Time Series Analysis, Wiley Blackwell, vol. 22(6), pages 631-650, November.
    3. Krämer, Walter, 2008. "Long memory with Markov-Switching GARCH," Economics Letters, Elsevier, vol. 99(2), pages 390-392, May.
    4. Diebold, Francis X. & Inoue, Atsushi, 2001. "Long memory and regime switching," Journal of Econometrics, Elsevier, vol. 105(1), pages 131-159, November.
    5. Cătălin Stărică & Clive Granger, 2005. "Nonstationarities in Stock Returns," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 503-522, August.
    6. Hillebrand, Eric, 2005. "Neglecting parameter changes in GARCH models," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 121-138.
    7. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Keywords

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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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