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A Smooth Transition GARCH-M Model

Author

Listed:
  • Tsatsura, Oleg

    (Plekhanov Russian University of Economics)

Abstract

Generalized autoregressive conditional heteroscedasticity in-mean model allows accounting for both time-varying variance and risk premium in financial time series data. This paper introduces an extension of this particular model with more flexible parameterization of the way variance enters the conditional mean equation, which allows for more complex dynamics in the time-varying risk premium. Paper presents model specification, criteria for hypothesis testing and develops an application for several stock exchange indexes. Results suggest evidence that proposed model may be more preferable to standard GARCH-in-mean model.

Suggested Citation

  • Tsatsura, Oleg, 2010. "A Smooth Transition GARCH-M Model," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 17(1), pages 45-61.
  • Handle: RePEc:ris:apltrx:0085
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Nonlinear GARCH; volatility; risk premium; varying parameters;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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