Rational GARCH model: An empirical test for stock returns

Tetsuya Takaishi

Physica A: Statistical Mechanics and its Applications, 2017, vol. 473, issue C, 451-460

Abstract: We propose a new ARCH-type model that uses a rational function to capture the asymmetric response of volatility to returns, known as the “leverage effect”. Using 10 individual stocks on the Tokyo Stock Exchange and two stock indices, we compare the new model with several other asymmetric ARCH-type models. We find that according to the deviance information criterion, the new model ranks first for several stocks. Results show that the proposed new model can be used as an alternative asymmetric ARCH-type model in empirical applications.

Keywords: Asymmetric GARCH model; Leverage effect; Padé approximants; Rational approximation; Deviance information criterion; News impact curve (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:473:y:2017:i:c:p:451-460

DOI: 10.1016/j.physa.2017.01.011

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