A new GARCH model with a deterministic time-varying intercept

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Sammanfattning

We show that a popular multiplicative decomposition of volatility has an interpretation as a GARCH model augmented by a time-varying intercept. We parameterize the intercept by a logistic transition function with rescaled time as the transition variable, which provides a flexible and simple way of capturing deterministic non-linear changes in the conditional and unconditional variances.
It is common for financial time series to exhibit these types of shifts. The time-varying intercept makes the model globally nonstationary but locally stationary. We use the theory of locally stationary processes to derive the asymptotic properties of the quasi maximum likelihood estimator (QMLE) of the parameters of the model. We show that the QMLE is consistent and asymptotically normally distributed. To corroborate the results of the analysis, we provide a small simulation study. An empirical application on Oracle Corporation returns demonstrates the usefulness of the model. We find that the persistence implied by the workhorse GARCH(1,1) parameter estimates is reduced by incorporating a time-varying intercept.
OriginalspråkEngelska
Titel på värdpublikationNORDSTAT 2023 Booklet with Abstracts
Antal sidor1
UtgivningsortGothenburg
Utgivningsdatum17.06.2023
Sidor24
StatusPublicerad - 17.06.2023
MoE-publikationstypB3 Icke-referentgranskad artikel i konferenspublikation
Evenemang29th Nordic Conference in Mathematical Statistics, NORDSTAT 2023 - Department of Mathematical Sciences at Chalmers University of Technology, Gothenburg, Sverige
Varaktighet: 19.06.202322.06.2023
Konferensnummer: 29
https://nordstat2023.org/

Nyckelord

  • 112 Statistik

Styrkeområden och områden med hög potential (AoS och AoHP)

  • AoS: Finansiering, redovisning och företagsstyrning

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