Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107808
Authors: 
Martinet, Guillaume Gaetan
McAleer, Michael
Year of Publication: 
2014
Series/Report no.: 
Tinbergen Institute Discussion Paper 14-096/III
Abstract: 
Of the two most widely estimated univariate asymmetric conditional volatility models, the exponential GARCH (or EGARCH) specification can capture asymmetry, which refers to the different effects on conditional volatility of positive and negative effects of equal magnitude, and leverage, which refers to the negative correlation between the returns shocks and subsequent shocks to volatility. However, the statistical properties of the (quasi-) maximum likelihood estimator (QMLE) of the EGARCH parameters are not available under general conditions, but only for special cases under highly restrictive and unverifiable conditions. A limitation in the development of asymptotic properties of the QMLE for EGARCH is the lack of an invertibility condition for the returns shocks underlying the model. It is shown in this paper that the EGARCH model can be derived from a stochastic process, for which the invertibility conditions can be stated simply and explicitly. This will be useful in re-interpreting the existing properties of the QMLE of the EGARCH parameters.
Subjects: 
Leverage
asymmetry
existence
stochastic process
asymptotic properties
invertibility
JEL: 
C22
C52
C58
G32
Document Type: 
Working Paper

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