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model relative to even very complex multivariate GARCH specifications, recently reported in the literature using measures of …-of-sample forecast tests indicate that the four-regime MS model is, indeed, superior to all of the GARCH specifications in forecasting …-asset return covariances, however, the MS model is surprisingly superior to all of the GARCH models. …
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In this paper we present an exact maximum likelihood treatment forthe estimation of a Stochastic Volatility in Mean(SVM) model based on Monte Carlo simulation methods. The SVM modelincorporates the unobserved volatility as anexplanatory variable in the mean equation. The same extension...
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