Short patches of outliers, ARCH and volatility modelling
The (Generalized) AutoRegressive Conditional Heteroscedasticity [(G)ARCH] model is tested for daily data on 22 exchange rates and 13 stock market indices using the standard Lagrange Multiplier [LM] test for GARCH and a LM test that is resistant to patches of additive outliers. The data span two samples of five years ranging from 1986 to 1995. Using asymptotic arguments and Monte Carlo simulations, in which the empirical method is evaluated, it is shown that patches of outliers can have significant effects on test outcomes. The main empirical result is that spurious GARCH is found in about 40% of the cases, while in many other cases evidence of GARCH is found even though such sequences of extraordinary observations seem to be present.
Volume (Year): 14 (2004)
Issue (Month): 4 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
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.:
- Baillie, Richard T & Bollerslev, Tim, 1989.
"The Message in Daily Exchange Rates: A Conditional-Variance Tale,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 7(3), pages 297-305, July.
- Baillie, Richard T & Bollerslev, Tim, 2002. "The Message in Daily Exchange Rates: A Conditional-Variance Tale," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 60-68, January.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- 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.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:14:y:2004:i:4:p:221-231. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.