Articlehybrid1995

All in the family Nesting symmetric and asymmetric GARCH models

723 citations0/0 files storedJournal of Financial Economics

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Stochastic processes and financial applications

Abstract

This paper develops a parametric family of models of generalized autoregressive heteroskedasticity (GARCH). The family nests the most popular symmetric and asymmetric GARCH models, thereby highlighting the relation between the models and their treatment of asymmetry. Furthermore, the structure permits nested tests of different types of asymmetry and functional forms. Daily U.S. stock return data reject all standard GARCH models in favor of a model in which, roughly speaking, the conditional standard deviation depends on the shifted absolute value of the shocks raised to the power three halves and past standard deviations.

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References

1986Generalized autoregressive conditional heteroskedasticity 1982Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1991Conditional Heteroskedasticity in Asset Returns: A New Approach 1993On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks 1963The Variation of Certain Speculative Prices 1997The variation of certain speculative prices 1987Expected stock returns and volatility 1987The Pricing of Options on Assets with Stochastic Volatilities

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