Modelling multiple regimes in financial volatility with a flexible coefficient GARCH model
In this paper a flexible GARCH-type model is developed with the aim of describing sign and size asymmetries in financial volatility as well as intermittent dynamics and excess of kurtosis. A sufficient condition for strict stationarity and ergodicity of the model is established and the existence of the second- and fourth-order moments is discussed. It is shown that the model may have explosive regimes and still be strictly stationary and ergodic. Furthermore, estimation of the parameters is carefully addressed and the asymptotic properties of the quasi-maximum likelihood estimator is derived. A modeling cycle based on a sequence of simple and easily implemented Lagrange multiplier tests is discussed in order to avoid the estimation of unidentified models. A Monte-Carlo experiment is designed to evaluate the methodology. Empirical examples are used to illustrate the use of the model in practical situations.
|Date of creation:||Jul 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Rua Marquês de São Vicente, 225, 22453-900 Rio de Janeiro, RJ|
Phone: 021 35271078
Fax: 021 35271084
Web page: http://www.econ.puc-rio.br
More information through EDIRC
References listed on IDEAS
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.:
- Robert F. Engle & Victor K. Ng, 1991.
"Measuring and Testing the Impact of News on Volatility,"
NBER Working Papers
3681, National Bureau of Economic Research, Inc.
- Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December.
- Hamilton, James D. & Susmel, Raul, 1994.
"Autoregressive conditional heteroskedasticity and changes in regime,"
Journal of Econometrics,
Elsevier, vol. 64(1-2), pages 307-333.
- Tom Doan, . "RATS programs to estimate Hamilton-Susmel Markov Switching ARCH model," Statistical Software Components RTZ00083, Boston College Department of Economics.
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- William N. Goetzmann & Roger G. Ibbotson & Liang Peng, 2000.
"A New Historical Database For The NYSE 1815 To 1925: Performance And Predictability,"
Yale School of Management Working Papers
ysm154, Yale School of Management.
- Goetzmann, William N. & Ibbotson, Roger G. & Peng, Liang, 2001. "A new historical database for the NYSE 1815 to 1925: Performance and predictability," Journal of Financial Markets, Elsevier, vol. 4(1), pages 1-32, January.
- William N. Goetzmann & ROGER G. IBBOTSON & LIANG PENG, 2004. "A New Historical Database For The NYSE 1815 To 1925: Performance And Predictability," Yale School of Management Working Papers ysm5, Yale School of Management.
- Wooldridge, Jeffrey M., 1990. "A Unified Approach to Robust, Regression-Based Specification Tests," Econometric Theory, Cambridge University Press, vol. 6(01), pages 17-43, March.
- Gourieroux,Christian & Monfort,Alain, 1995.
"Statistics and Econometric Models,"
Cambridge University Press, number 9780521477444, November.
- Gourieroux,Christian & Monfort,Alain, 1995. "Statistics and Econometric Models," Cambridge Books, Cambridge University Press, number 9780521477451, November.
- Gourieroux,Christian & Monfort,Alain, 1995. "Statistics and Econometric Models," Cambridge Books, Cambridge University Press, number 9780521471626, November.
- Gourieroux,Christian & Monfort,Alain, 1995. "Statistics and Econometric Models," Cambridge Books, Cambridge University Press, number 9780521405515, November.
- Cai, Jun, 1994. "A Markov Model of Switching-Regime ARCH," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 309-16, July.
- Comte, F. & Lieberman, O., 2003. "Asymptotic theory for multivariate GARCH processes," Journal of Multivariate Analysis, Elsevier, vol. 84(1), pages 61-84, January.
- Rabemananjara, R & Zakoian, J M, 1993. "Threshold Arch Models and Asymmetries in Volatility," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 31-49, Jan.-Marc.
- Schwert, G William, 1990.
"Stock Volatility and the Crash of '87,"
Review of Financial Studies,
Society for Financial Studies, vol. 3(1), pages 77-102.
- White,Halbert, 1994.
"Estimation, Inference and Specification Analysis,"
Cambridge University Press, number 9780521252805, November.
- Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Ebens, Heiko, 2001. "The distribution of realized stock return volatility," Journal of Financial Economics, Elsevier, vol. 61(1), pages 43-76, July.
- Chen, Cathy W. S. & Chiang, Thomas C. & So, Mike K. P., 2003. "Asymmetrical reaction to US stock-return news: evidence from major stock markets based on a double-threshold model," Journal of Economics and Business, Elsevier, vol. 55(5-6), pages 487-502.
- Fabio Trojani & Francesco Audrino, 2006. "Estimating and predicting multivariate volatility thresholds in global stock markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(3), pages 345-369.
- Jeantheau, Thierry, 1998. "Strong Consistency Of Estimators For Multivariate Arch Models," Econometric Theory, Cambridge University Press, vol. 14(01), pages 70-86, February.
- Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
- M. Angeles Carnero, 2004. "Persistence and Kurtosis in GARCH and Stochastic Volatility Models," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 2(2), pages 319-342.
- Shiqing Ling & Michael McAleer, 2001.
"Stationarity and the Existence of Moments of a Family of GARCH Processes,"
ISER Discussion Paper
0535, Institute of Social and Economic Research, Osaka University.
- Ling, Shiqing & McAleer, Michael, 2002. "Stationarity and the existence of moments of a family of GARCH processes," Journal of Econometrics, Elsevier, vol. 106(1), pages 109-117, January.
- Li, W K & Ling, Shiqing & McAleer, Michael, 2002. " Recent Theoretical Results for Time Series Models with GARCH Errors," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 245-69, July.
- Markku Lanne & Pentti Saikkonen, 2005.
"Non-linear GARCH models for highly persistent volatility,"
Royal Economic Society, vol. 8(2), pages 251-276, 07.
- Lanne, Markku & Saikkonen, Pentti, 2002. "Nonlinear GARCH models for highly persistent volatility," SFB 373 Discussion Papers 2002,20, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Fornari, Fabio & Mele, Antonio, 1997.
"Sign- and Volatility-Switching ARCH Models: Theory and Applications to International Stock Markets,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 12(1), pages 49-65, Jan.-Feb..
- Fornari, F. & Mele, A., 1995. "Sign- and Volatility -Switching ARCH Models: Theory and Applications to International Stock Markets," Papers 251, Banca Italia - Servizio di Studi.
- Medeiros, Marcelo & Veiga, Alvaro, 2000. "A Flexible Coefficient Smooth Transition Time Series Model," SSE/EFI Working Paper Series in Economics and Finance 360, Stockholm School of Economics, revised 10 Feb 2000.
When requesting a correction, please mention this item's handle: RePEc:rio:texdis:486. 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: ()
If references are entirely missing, you can add them using this form.