Li, Dong and Ling, Shiqing and Zhu, Ke
(2016):
*ZD-GARCH model: a new way to study heteroscedasticity.*

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## Abstract

This paper proposes a first-order zero-drift GARCH (ZD-GARCH(1, 1)) model to study conditional heteroscedasticity and heteroscedasticity together. Unlike the classical GARCH model, ZD-GARCH(1, 1) model is always non-stationary regardless of the sign of the Lyapunov exponent $\gamma_{0}$ , but interestingly when $\gamma_{0}$ = 0, it is stable with its sample path oscillating randomly between zero and infinity over time. Furthermore, this paper studies the generalized quasi-maximum likelihood estimator (GQMLE) of ZD-GARCH(1, 1) model, and establishes its strong consistency and asymptotic normality. Based on the GQMLE, an estimator for $\gamma_{0}$, a test for stability, and a portmanteau test for model checking are all constructed. Simulation studies are carried out to assess the finite sample performance of the proposed estimators and tests. Applications demonstrate that a stable ZD-GARCH(1, 1) model is more appropriate to capture heteroscedasticity than a non-stationary GARCH(1, 1) model, which suffers from an inconsistent QMLE of the drift term

Item Type: | MPRA Paper |
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Original Title: | ZD-GARCH model: a new way to study heteroscedasticity |

English Title: | ZD-GARCH model: a new way to study heteroscedasticity |

Language: | English |

Keywords: | Conditional heteroscedasticity; GARCH model; Generalized quasi-maximum likelihood estimator; Heteroscedasticity; Portmanteau test; Stability test; Top Lyapunov exponent; Zero-drift GARCH model. |

Subjects: | C - Mathematical and Quantitative Methods > C0 - General C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics C - Mathematical and Quantitative Methods > C5 - Econometric Modeling C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation |

Item ID: | 68621 |

Depositing User: | Dr. Ke Zhu |

Date Deposited: | 02 Jan 2016 11:15 |

Last Modified: | 28 Sep 2019 08:56 |

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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/68621 |