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Journal of Financial Econometrics Advance Access originally published online on April 12, 2006
Journal of Financial Econometrics 2006 4(3):385-412; doi:10.1093/jjfinec/nbj011
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© The Author 2006. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

Dynamic Asymmetric GARCH

Massimiliano Caporin
     Università degli Studi di Padova

Michael McAleer
     University of Western Australia

Address correspondence to Massimiliano Caporin, Dipartimento di Scienze Economiche "Marco Fanno", Università degli Studi di Padova, Via del Santo, 33, 35123 Padova, Italy, or e-mail: massimiliano.caporin{at}unipd.it.

This article develops the dynamic asymmetric GARCH (or DAGARCH) model that generalizes asymmetric GARCH models such as that of Glosten, Jagannathan, and Runkle (GJR), introduces multiple thresholds, and makes the asymmetric effect time dependent. We provide the stationarity conditions for the DAGARCH model and show how GJR can be obtained as a special case. Furthermore, we derive the news impact curve implied by the DAGARCH model and demonstrate its flexibility. An application to daily stock market indices is presented to demonstrate the practical usefulness of the new model.

KEYWORDS: asymmetric volatility, DAGARCH, stationarity conditions, threshold GARCH

Received June 20, 2005; revised February 14, 2006; accepted March 9, 2006


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