GARCH with omitted persistent covariate

This paper analyzes the effect of omitting a persistent covariate in the GARCH-X model. In particular, we show that if the relevant persistent covariate is omitted and the usual GARCH(1,1) model is fitted, the model will be estimated approximately as an IGARCH model. This may well explain the ubiquitous evidence of the IGARCH in empirical volatility analysis.

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Year of publication:	2014
Authors:	Han, Heejoon ; Park, Joon Y.
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 124.2014, 2, p. 248-254
Publisher:	Elsevier
Subject:	IGARCH \| GARCH-X \| Nonlinear nonstationary time series \| Fractionally integrated process

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Type of publication:	Article
Classification:	C22 - Time-Series Models ; C50 - Econometric Modeling. General ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010933284