GMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study

Torben Andersen and Bent Sorensen

Journal of Business & Economic Statistics, 1996, vol. 14, issue 3, 328-52

Abstract: The authors examine alternative generalized method of moments procedures for estimation of a lognormal stochastic autoregressive volatility model by Monte Carlo methods. They document the existence of a trade-off between the number of moments, or information, included in estimation and the quality, or precision, of the objective function used for estimation. Furthermore, an approximation to the optimal weighting matrix is utilized to explore the impact of the weighting matrix for estimation, specification testing, and inference procedures. The results provide guidelines that help achieve desirable small sample properties in settings characterized by strong conditional heteroskedasticity and correlation among the moments.

Date: 1996
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Related works:
Working Paper: GMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study (1995)
Working Paper: EMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study
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