GARCH with omitted persistent covariate

Heejoon Han and Joon Y. Park

Economics Letters, 2014, vol. 124, issue 2, 248-254

Abstract: This paper analyzes the effect of omitting a persistent covariate in the GARCH-X model. In particular, we show that if the relevant persistent covariate is omitted and the usual GARCH(1,1) model is fitted, the model will be estimated approximately as an IGARCH model. This may well explain the ubiquitous evidence of the IGARCH in empirical volatility analysis.

Keywords: IGARCH; GARCH-X; Nonlinear nonstationary time series; Fractionally integrated process (search for similar items in EconPapers)
JEL-codes: C22 C50 G12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:2:p:248-254

DOI: 10.1016/j.econlet.2014.05.016

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