Conrad, Christian ; Kleen, Onno
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Abstract
We examine the statistical properties of multiplicative GARCH models. First, we show that in multiplicative models, returns have higher kurtosis and squared returns have a more persistent autocorrelation function than in the nested GARCH model. Second, we extend the results of Andersen and Bollerslev (1998) on the upper bound of the R2 in a Mincer-Zarnowitz regression to the case of a multiplicative GARCH model, using squared returns as a proxy for the true but unobservable conditional variance. Our theoretical results imply that multiplicative GARCH models provide an explanation for stylized facts that cannot be captured by classical GARCH modeling.
| Document type: | Working paper |
|---|---|
| Series Name: | Discussion Paper Series, University of Heidelberg, Department of Economics |
| Volume: | 0613 |
| Place of Publication: | Heidelberg |
| Date Deposited: | 18 Mar 2016 10:27 |
| Date: | March 2016 |
| Number of Pages: | 10 |
| Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
| DDC-classification: | 330 Economics |
| Uncontrolled Keywords: | Forecast evaluation, GARCH-MIDAS, Mincer-Zarnowitz regression, volatility persistence, volatility component model, long-term volatility. |
| Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |
