GARCH models with changes in variance: An approximation to risk measurements

Vicent Aragó () and Ángeles Fernández-Izquierdo
Additional contact information
Vicent Aragó: Jaume University I, Campus del Riu Sec
Ángeles Fernández-Izquierdo: Bachelor in Economics from Universitat de Valencia (Spain)

Journal of Asset Management, 2003, vol. 4, issue 4, No 5, 277-287

Abstract: Abstract This study aims to model volatility as an approximation to an optimum measurement of stock market risk because of the importance of this concept for, among other things, the proper management of portfolios. Following the proposal of Lamoureux and Lastrapes (1990), the authors consider that the high degree of persistence detected in GARCH models arises from a poor specification of the equation of the variance due to not considering the possible deterministic changes in the unconditional variance of the financial series. To determine the point in time as well as the duration of these changes, the proposal made by Inclan and Tiao (1994) is used. As an empirical application, whether or not the consideration of the changes obtained influences the diagram of conditional heteroscedasticity presented by the spot and futures series on the IBEX-35 index is tested for the Spanish stock market. The results show that the consideration of these changes considerably decreases the degree of persistence for the IBEX-35 index while, for its futures contract, the GARCH diagram disappears.

Keywords: portfolio management; risk measurements; GARCH; changes in variance; persistence (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1057/palgrave.jam.2240108 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:assmgt:v:4:y:2003:i:4:d:10.1057_palgrave.jam.2240108

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/palgrave.jam.2240108

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().