CEMAPRE Seminar

Friday, January 18, 2008

Modelling Conditional and Unconditional Heteroskedasticity with Smoothly Time-Varying Structure


Cristina Amado
(Universidade do Minho and Stockholm School of Economics)

Abstract: In this paper, we propose two parametric alternatives to the standard GARCH model. They allow the conditional variance to have a smooth time-varying structure of either additive or multiplicative type. The suggested parameterizations describe both nonlinearity and structural change in the conditional and unconditional variances where the transition between regimes over time is smooth. A modelling strategy for these new time-varying parameter GARCH models is developed. It relies on a sequence of Lagrange multiplier tests, and the adequacy of the estimated models is investigated by Lagrange multiplier type misspecification tests. Finite-sample properties of these procedures and tests are examined by simulation. An empirical application to daily stock returns and another one to daily exchange rate returns illustrate the functioning and properties of our modelling strategy in practice. The results show that the long memory type behaviour of the sample autocorrelation functions of the absolute returns can also be explained by deterministic changes in the unconditional variance.

Notice: Note exceptional time
Friday, January 18, 2008
Time: 11h45
Room: Sala Delta, Edificio Quelhas, ISEG
http://cemapre.iseg.ulisboa.pt/seminars/cemapre/