Journal of Economic Theory and Econometrics: Journal of the Korean Econometric Society
Home About    Aims and Scope    Editorial Board Submit Archive Search
Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

Semiparametric ARCH-X Model for Leverage Effect and Long Memory in Stock Return Volatility

Vol.25, No.3, September , 81–100



  •   (Department of Eonomics, National University of Singapore)

  •   (Department of Economics, Sungkyunkwan University)

PDF
Abstract  

This paper investigates a new semiparametric ARCH-X model to account for both leverage effect and long memory property in volatility. It is a partial linear model combining a nonparametric ARCH component and an exogenous covariate that is persistent in memory. This model can allow for a flexible functional form of the asymmetric relationship between stock return and volatility and generate the long memory property in volatility. We adopt a realized volatility measure as the covariate in our model. For the daily FTSE 100 Index return series, the nonparametric component of our model captures the leverage effect and is estimated to be a complex nonlinear function. It is shown that our model outperforms other parametric or nonparametric volatility models both in within-sample and out-of-sample forecasts.


Keywords
   nonparametric ARCH, semiparametric volatility model, local maximum log-likelihood, leverage effect, long memory property

JEL classification codes
   C14, C22, G12
Links

KCI
KES
SCOPUS
MathJax