Identification of asymmetric conditional heteroscedasticity in the presence of outliers

M. Angeles Carnero, Ana Pérez () and Esther Ruiz ()
Additional contact information
Ana Pérez: Universidad de Valladolid

SERIEs: Journal of the Spanish Economic Association, 2016, vol. 7, issue 1, No 6, 179-201

Abstract: Abstract The identification of asymmetric conditional heteroscedasticity is often based on sample cross-correlations between past and squared observations. In this paper we analyse the effects of outliers on these cross-correlations and, consequently, on the identification of asymmetric volatilities. We show that, as expected, one isolated big outlier biases the sample cross-correlations towards zero and hence could hide true leverage effect. Unlike, the presence of two or more big consecutive outliers could lead to detecting spurious asymmetries or asymmetries of the wrong sign. We also address the problem of robust estimation of the cross-correlations by extending some popular robust estimators of pairwise correlations and autocorrelations. Their finite sample resistance against outliers is compared through Monte Carlo experiments. Situations with isolated and patchy outliers of different sizes are examined. It is shown that a modified Ramsay-weighted estimator of the cross-correlations outperforms other estimators in identifying asymmetric conditionally heteroscedastic models. Finally, the results are illustrated with an empirical application.

Keywords: Cross-correlations; Leverage effect; Robust correlations; EGARCH (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://link.springer.com/10.1007/s13209-015-0131-4 Abstract (text/html)

Related works:
Working Paper: Identification of asymmetric conditional heteroscedasticity in the presence of outliers (2014)
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:spr:series:v:7:y:2016:i:1:d:10.1007_s13209-015-0131-4

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/13209

DOI: 10.1007/s13209-015-0131-4

Access Statistics for this article

SERIEs: Journal of the Spanish Economic Association is currently edited by Nezih Guner

More articles in SERIEs: Journal of the Spanish Economic Association from Springer, Spanish Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().