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GARCH model with cross-sectional volatility: GARCHX models

  • Soosung Hwang
  • Steve Satchell

This study introduces GARCH models with cross-sectional market volatility, which are called GARCHX models. The cross-sectional market volatility is a special case of common heteroscedasticity in asset specific returns, which is suggested by Connor and Linton (2001) as an important component in individual asset volatility. Using UK and US data, we find that daily return volatility can be better specified with GARCHX models, but GARCHX models do not necessarily perform better than conventional GARCH models in forecasting.

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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 3 ()
Pages: 203-216

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:3:p:203-216
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  18. Hwang, Soosung & Satchell, Stephen E., 2000. "Market risk and the concept of fundamental volatility: Measuring volatility across asset and derivative markets and testing for the impact of derivatives markets on financial markets," Journal of Banking & Finance, Elsevier, vol. 24(5), pages 759-785, May.
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  25. Soosung Hwang & John Knight & Stephen E. Satchell, 2001. "Forecasting Nonlinear Functions of Returns Using LINEX Loss Functions," Annals of Economics and Finance, Society for AEF, vol. 2(1), pages 187-213, May.
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