SPURIOUS AND HIDDEN VOLATILITY

M. Angeles Carnero, Daniel Peña and Esther Ruiz ()

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper analyzes the effects caused by outliers on the identification and estimation of GARCH models. We show that outliers can lead to detect spurious conditional heteroscedasticity and can also hide genuine ARCH effects. First, we derive the asymptotic biases caused by outliers on the sample autocorrelations of squared observations and their effects on some homoscedasticity tests. Then, we obtain the asymptotic biases of the OLS estimates of ARCH(p) models and analyze their finite sample behaviour by means of extensive Monte Carlo experiments. The finite sample results are extended to GLS and ML estimates ARCH(p) and GARCH(1,1) models.

Keywords: GARCH; Outliers; Heteroscedasticity (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-11
New Economics Papers: this item is included in nep-ets and nep-fmk
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Citations: View citations in EconPapers (2)

Published by Ivie

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http://www.ivie.es/downloads/docs/wpasad/wpasad-2004-45.pdf Fisrt version / Primera version, 2004 (application/pdf)

Related works:
Working Paper: Spurious and hidden volatility (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2004-45

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