Skip Navigation


Journal of Financial Econometrics Advance Access originally published online on May 25, 2008
Journal of Financial Econometrics 2008 6(3):291-306; doi:10.1093/jjfinec/nbn008
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow All Versions of this Article:
6/3/291    most recent
nbn008v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Franses, P. H.
Right arrow Articles by Paap, R.
Right arrow Search for Related Content
Related Collections
Right arrow C22 - Time-Series Models
Right arrow C52 - Model Evaluation and Selection
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2008. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

A Simple Test for GARCH Against a Stochastic Volatility Model

Philip Hans Franses
     Econometric Institute, Erasmus University Rotterdam

Marco van der Leij
     Department of Economics, University of Alicante

Richard Paap
     Econometric Institute, Erasmus University Rotterdam

Address correspondence to Philip Hans Franses, Erasmus University Rotterdam, Econometric Institute H11-34, P. O. Box 1738, NL-3000 DR Rotterdam, The Netherlands, or e-mail: franses{at}few.eur.nl.

JEL Classification: C22, C52


  Abstract

GARCH models and Stochastic Volatility (SV) models can both be used to describe unobserved volatility in asset returns. We consider the issue of testing a GARCH model against an SV model. For that purpose, we propose a new and parsimonious GARCH-t model with an additional restricted moving average term, which can capture SV model properties. We discuss model representation, parameter estimation, and our simple test for model selection. Furthermore, we derive the theoretical moments and the autocorrelation function of our new model. We illustrate our model and test for nine daily stock-return series.

KEYWORDS: GARCH, model selection, stochastic volatility

We thank the associate editor, three anonymous reviewers, and in particular Eric Renault for helpful suggestions. We thank Torben Andersen, Dennis Fok, Jun Wu, Asger Lunde, Peter Boswijk, Marius Ooms, Charles Bos, Michael McAleer, and Robert Engle for their comments made at several seminar presentations.

Received September 6, 2006; revised November 2, 2007; accepted April 10, 2008


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.