Learning and Conditional Heteroscedasticity in Asset Returns
Despite the widespread use of the GARCH model, the specification of the heteroscedasticity is essentially ad hoc. This paper's contribution is to develop a model of asset pricing and learning where GARCH disturbances evolve naturally out of the decision problem of economic agents. An empirical example with the Italian-Lira German Deutschemark exchange rate supports the extended GARCH specification proposed in the paper.
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|Date of creation:||24 Jul 1996|
|Publication status:||Forthcoming in "Learning and ARCH Disturbances in Asset Returns," in Catherine Kyrtsou (ed.), Progress in Financial Markets Research, New York: Nova Science.|
|Contact details of provider:|| Postal: New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248|
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