Bad environments, good environments: A non-Gaussian asymmetric volatility model
2014; Elsevier BV; Volume: 186; Issue: 1 Linguagem: Inglês
10.1016/j.jeconom.2014.06.021
ISSN1872-6895
AutoresGeert Bekaert, Eric Engström, Andrey Ermolov,
Tópico(s)Market Dynamics and Volatility
ResumoWe propose an extension of standard asymmetric volatility models in the generalized autoregressive conditional heteroskedasticity (GARCH) class that admits conditional non-Gaussianities in a tractable fashion. Our “bad environment–good environment” (BEGE) model utilizes two gamma-distributed shocks and generates a conditional shock distribution with time-varying heteroskedasticity, skewness, and kurtosis. The BEGE model features nontrivial news impact curves and closed-form solutions for higher-order moments. In an empirical application to stock returns, the BEGE model outperforms asymmetric GARCH and regime-switching models along several dimensions.
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