Regime switching GARCH models

Luc Bauwens, Preminger Arie and Jeroen Rombouts
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Preminger Arie: UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)

No 2006006, Discussion Papers (ECON - Département des Sciences Economiques) from Université catholique de Louvain, Département des Sciences Economiques

Abstract: We develop univariate regime-switching GARCH (RS-GARCH) models wherein the conditional variance switches in time from one GARCH process to another. The switching is governed by a time-varying probability, specified as a function of past information. We provide sufficient conditions for stationarity and existence of moments. Because of path dependence, maximum likehood estimation is infeasible. By enlarging the parameter space to include the state variables, Bayesian estimation using a Gibbs sampling algorithm is feasible. We apply this model using the NASDAQ daily returns series.

Keywords: GARCH; regime switching; Bayesian inference (search for similar items in EconPapers)
JEL-codes: C11 C22 C52 (search for similar items in EconPapers)
Pages: 24
Date: 2006-02-01
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (24)

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Working Paper: Regime switching GARCH models (2006)
Working Paper: Regime switching GARCH models (2006)
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