An Application of the Stochastic GARCH-in-Mean Model to Risk Premia in the London Metal Exchange

Stephen Hall

The Manchester School of Economic & Social Studies, 1991, vol. 59, issue 0, 57-71

Abstract: A recent paper, S. G. Hall and M. P. Taylor (1989), investigated a range of time-varying models for the risk premium for forward prices on the London Metal Exchange. By far the most successful model is the GARCH-M model, which assumes the GARCH process is exact. This paper considers how this assumption may be dropped and generates a stochastic GARCH process (SGARCH-M). This model is applied to the data used in Hall and Taylor (1989). A complication is that, under rational expectations, a second order moving average error process will exist. The model is extended to include this process. The results support the new model. Copyright 1991 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:bla:manch2:v:59:y:1991:i:0:p:57-71

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