Sucarrat, Genaro and Escribano, Alvaro (2013): Estimation of LogGARCH Models in the Presence of Zero Returns.
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Abstract
A critique that has been directed towards the logGARCH model is that its logvolatility specification does not exist in the presence of zero returns. A common "remedy" is to replace the zeros with a small (in the absolute sense) nonzero value. However, this renders estimation asymptotically biased. Here, we propose a solution to the case where the true return is equal to zero with probability zero. In this case zero returns may be observed because of nontrading, measurement error (e.g. due to rounding), missing values and other data issues. The algorithm we propose treats the zeros as missing values and handles these by estimation via the ARMA representation. An extensive number of simulations verify the conjectured asymptotic properties of the biascorrecting algorithm, and several empirical applications illustrate that it can make a substantial difference in practice.
Item Type:  MPRA Paper 

Original Title:  Estimation of LogGARCH Models in the Presence of Zero Returns 
English Title:  Estimation of LogGARCH Models in the Presence of Zero Returns 
Language:  English 
Keywords:  ARCH, exponential GARCH, logGARCH, ARMA, ExpectationMaximisation (EM) 
Subjects:  C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C22  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C58  Financial Econometrics 
Item ID:  75010 
Depositing User:  Dr. Genaro Sucarrat 
Date Deposited:  11 Nov 2016 12:46 
Last Modified:  26 Sep 2019 19:53 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/75010 
Available Versions of this Item

Unbiased QML Estimation of LogGARCH Models in the Presence of Zero Returns. (deposited 16 Oct 2013 08:20)

Unbiased Estimation of LogGARCH Models in the Presence of Zero Returns. (deposited 02 Oct 2014 13:23)
 Estimation of LogGARCH Models in the Presence of Zero Returns. (deposited 11 Nov 2016 12:46) [Currently Displayed]

Unbiased Estimation of LogGARCH Models in the Presence of Zero Returns. (deposited 02 Oct 2014 13:23)