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A better asymmetric model of changing volatility in stock and exchange rate returns : trend-GARCH

Title data

Bauer, Christian:
A better asymmetric model of changing volatility in stock and exchange rate returns : trend-GARCH.
In: The European Journal of Finance. Vol. 13 (2007) Issue 1 . - pp. 65-87.
ISSN 1466-4364
DOI: https://doi.org/10.1080/13518470600763752

Abstract in another language

The impact of short run price trending on the conditional volatility is tested empirically. A new family of conditionally heteroscedastic models with a trend-dependent conditional variance equation: The Trend-GARCH model is described. Modern microeconomic theory often suggests the connection between the past behaviour of time series, the subsequent reaction of market individuals, and thereon changes in the future characteristics of the time series. Results reveal important properties of these models, which are consistent with stylized facts found in financial data sets. They can also be employed for model identification, estimation, and testing. The empirical analysis supports the existence of trend effects. The Trend-GARCH model proves to be superior to alternative models such as EGARCH, AGARCH, TGARCH OR GARCH-in-Mean in replicating the leverage effect in the conditional variance, in fitting the news impact curve and in fitting the volatility estimates from high frequency data. In addition, we show that the leverage effect is dependent on the current trend, i.e. it differentiates between bullish and bearish markets. Furthermore, trend effects can account for a significant part of the long memory property of asset price volatilities.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: GARCH; trend; volatility; news impact curve; leverage effect; persistence
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I > Chair Economics I - Univ.-Prof. Dr. Bernhard Herz
Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics I
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
Date Deposited: 02 Apr 2015 06:06
Last Modified: 02 Apr 2015 06:06
URI: https://eref.uni-bayreuth.de/id/eprint/9770