A simple test for GARCH against a stochastic volatility
January 2005
Research Paper
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The GARCH model and the Stochastic Volatility [SV] model are competing but non-nested models to describe unobserved volatility in asset returns. We propose a GARCH model with an additional error term, which can capture SV model properties, and which can be used to test GARCH against SV. We discuss model representation, parameter estimation and a simple test for model selection. Furthermore, we derive the theoretical moments and the autocorrelation function of our new model. We illustrate its merits for 9 daily stock return series.
Keywords
Automatically Extracted Terms
- model
- garch
- garch model
- sgarch
- volatility
- process
- variance
- parameter
- moment
- sgarch model
- kurtosi
- table
- sv model
- return
- error
- estimation
- likelihood
- 0.014
- value
- series
