High Breakdown Point Conditional Dispersion Estimation with Application to S&P 500 Daily Returns Volatility

Shinichi Sakata () and Halbert White

Econometrica, 1998, vol. 66, issue 3, pages 529-568

Abstract: The authors show that quasimaximum likelihood (QML) estimators for conditional dispersion models can be severely affected by a small number of outliers such as market crashes and rallies, and they propose new estimation strategies (the two-stage Hampel estimators and two-stage S-estimators) resistant to the effects of outliers and study the properties of these estimators. They apply their methods to estimate models of the conditional volatility of the daily returns of the S&P 500 Cash Index series. In contrast to QML estimators, the authors' proposed method resists outliers, revealing an informative new picture of volatility dynamics during 'typical' daily market activity.

Date: 1998
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