EconPapers    
Economics at your fingertips  
 

Small sample properties of GARCH estimates and persistence

Soosung Hwang () and Pedro Valls Pereira ()

The European Journal of Finance, 2006, vol. 12, issue 6-7, 473-494

Abstract: It is shown that the ML estimates of the popular GARCH(1,1) model are significantly negatively biased in small samples and that in many cases converged estimates are not possible with Bollerslev's non-negativity conditions. Results also indicate that a high level of persistence in GARCH(1,1) models obtained using a large number of observations has autocorrelations lower than these ML estimates suggest in small samples. Considering the size of biases and convergence errors, it is proposed that at least 250 observations are needed for ARCH(1) models and 500 observations for GARCH(1,1) models. A simple measure of how much GARCH conditional volatility explains squared returns is proposed. The measure indicates that for a typical index return volatility whose ARCH parameter is very small, the conditional volatility hardly explains squared returns.

Keywords: Small sample; volatility; GARCH; persistence (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27) Track citations by RSS feed

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/13518470500039436 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Small Sample Properties of GARCH Estimates and Persistence (2003) Downloads
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:taf:eurjfi:v:12:y:2006:i:6-7:p:473-494

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2019-11-08
Handle: RePEc:taf:eurjfi:v:12:y:2006:i:6-7:p:473-494