EconPapers    
Economics at your fingertips  
 

Asymmetry and Leverage in Conditional Volatility Models

Michael McAleer

No 14-125/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: The three most popular univariate conditional volatility models are the generalized autoregressive conditional heteroskedasticity (GARCH) model of Engle (1982) and Bollerslev (1986), the GJR (or threshold GARCH) model of Glosten, Jagannathan and Runkle (1992), and the exponential GARCH (or EGARCH) model of Nelson (1990, 1991). The underlying stochastic specification to obtain GARCH was demonstrated by Tsay (1987), and that of EGARCH was shown recently in McAleer and Hafner (2014). These models are important in estimating and forecasting volatility, as well as capturing asymmetry, which is the different effects on conditional volatility of positive and negative effects of equal magnitude, and leverage, which is the negative correlation between returns shocks and subsequent shocks to volatility. As there seems to be some confusion in the literature between asymmetry and leverage, as well as which asymmetric models are purported to be able to capture leverage, the purpose of the paper is two-fold, namely: (1) to derive the GJR model from a random coefficient autoregressive process, with appropriate regularity conditions; and (2) to show that leverage is not possible in these univariate conditional volatility models.

Keywords: Conditional volatility models; random coefficient autoregressive processes; random coefficient complex nonlinear moving average process; asymmetry; leverage (search for similar items in EconPapers)
JEL-codes: C22 C52 C58 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
Date: 2014-09-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (79) Track citations by RSS feed

Downloads: (external link)
https://papers.tinbergen.nl/14125.pdf (application/pdf)

Related works:
Journal Article: Asymmetry and Leverage in Conditional Volatility Models (2014) Downloads
Working Paper: Asymmetry and Leverage in Conditional Volatility Models (2014) 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:tin:wpaper:20140125

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().

 
Page updated 2019-04-24
Handle: RePEc:tin:wpaper:20140125