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Three-factor profile analysis with GARCH innovations

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  • Leung, Pui-Lam
  • Wong, Wing-Keung

Abstract

The technique of ANOVA has been widely used in economics and finance where the observations are usually time-dependent but the model itself is treated as independent in time. In this paper, we extend an ANOVA model by relaxing the assumption of independence in time. We further relax the assumption of homoskedasticity in the traditional profile analysis by introducing GARCH innovations in our proposed profile analysis that allows for both autoregressive and moving average components in the heteroskedastic variance to display a high degree of persistence. We reprise the model with regards to the issue of American depository receipts by relaxing the time-dependence assumption that has been ignored in the literature. Applying our model, we find that the returns from the stocks and the American depository receipts are time-dependent and hence the traditional ANOVA cannot fully explore the time effect from the data.

Suggested Citation

  • Leung, Pui-Lam & Wong, Wing-Keung, 2008. "Three-factor profile analysis with GARCH innovations," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 77(1), pages 1-8.
    • Handle: RePEc:eee:matcom:v:77:y:2008:i:1:p:1-8
    DOI: 10.1016/j.matcom.2006.12.011
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    Cited by:

    1. Bai, Zhidong & Wong, Wing-Keung & Zhang, Bingzhi, 2010. "Multivariate linear and nonlinear causality tests," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(1), pages 5-17.
    2. Kim-Hung Pho & Thi Diem-Chinh Ho & Tuan-Kiet Tran & Wing-Keung Wong, 2019. "Moment Generating Function, Expectation And Variance Of Ubiquitous Distributions With Applications In Decision Sciences: A Review," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(2), pages 65-150, June.
    3. Morando, S. & Jemei, S. & Hissel, D. & Gouriveau, R. & Zerhouni, N., 2017. "ANOVA method applied to proton exchange membrane fuel cell ageing forecasting using an echo state network," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 131(C), pages 283-294.

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