A New Asymmetric GARCH Model: Testing, Estimation and Application
Since the seminal work by Engle (1982), the autoregressive conditional heteroscedasticity (ARCH) model has been an important tool for estimating the time-varying volatility as a measure of risk. Numerous extensions of this model have been put forward in the literature. The current paper offers an alternative approach for dealing with asymmetry in the underlying volatility model. Unlike previous papers that have dealt with asymmetry, this paper suggests to explicitly separate the positive shocks from the negative ones in the ARCH modeling approach. A test statistic is suggested for testing the null hypothesis of no asymmetric ARCH effects. In case the null hypothesis is rejected, the model can be estimated by using the maximum likelihood method. The suggested asymmetric volatility approach is applied to modeling separately the potential time-varying volatility in markets that are rising or falling by using the changes in the world market stock price index.
|Date of creation:||17 Mar 2013|
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- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
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- Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
- Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394-394.
- Nicholas Apergis & Stephen Miller, 2005. "Money volatility and output volatility: any asymmetric effects?: Evidence from conditional measures of volatility," Journal of Economic Studies, Emerald Group Publishing, vol. 32(5), pages 511-523, October.
- 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. Full references (including those not matched with items on IDEAS)
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