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Smooth Transition Garch Models: a Baysian Perspective

Michel Lubrano ()

No 2001032, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper proposes a new kind of asymmetric GARCH where the conditional variance obeys two différent regimes with a smooth transition function. In one formulation, the conditional variance reacts differently to negative and positive shocks while in a second formulation, small and big shocks have separate effects. The introduction of a threshold allows for a mixed effect. A Bayesian strategy, based on the comparison between posterior and predictive Bayesian residuals, is built for detecting the presence and the shape of non-linearities. The method is applied to the Brussels and Tokyo stock indexes. The attractiveness of an alternative parameterisation of the GARCH model is emphasised as a potential solution to some numerical problems.

JEL-codes: C11 C22 C51 G14 (search for similar items in EconPapers)
Date: 2001-09-01
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http://sites.uclouvain.be/econ/DP/REL/2001032.pdf (application/pdf)

Related works:
Working Paper: Smooth Transition GARCH Models: a Bayesian perspective (1999)
Working Paper: Smooth transition GARCH models: a Bayesian perspective (1998) Downloads
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