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Method of moments estimation of GO-GARCH models

  • Peter Boswijk, H.
  • van der Weide, Roy

We propose a new estimation method for the factor loading matrix in generalized orthogonal GARCH (GO-GARCH) models. The method is based on eigenvectors of suitably defined sample autocorrelation matrices of squares and cross-products of returns. The method is numerically more attractive than likelihood-based estimation. Furthermore, the new method does not require strict assumptions on the volatility models of the factors, and therefore is less sensitive to model misspecification. We provide conditions for consistency of the estimator, and study its efficiency relative to maximum likelihood estimation using Monte Carlo simulations. The method is applied to European sector returns.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 163 (2011)
Issue (Month): 1 (July)
Pages: 118-126

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Handle: RePEc:eee:econom:v:163:y:2011:i:1:p:118-126
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. BAUWENS, Luc & LAURENT, Sébastien & ROMBOUTS, Jeroen, 2003. "Multivariate GARCH models: a survey," CORE Discussion Papers 2003031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  20. Jensen, S ren Tolver & Rahbek, Anders, 2007. "On The Law Of Large Numbers For (Geometrically) Ergodic Markov Chains," Econometric Theory, Cambridge University Press, vol. 23(04), pages 761-766, August.
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