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Persistence in Variance, Structural Change, and the GARCH Model
Christopher G. Lamoureux and William D. Lastrapes
Journal of Business & Economic Statistics
Vol. 8, No. 2 (Apr., 1990), pp. 225-234
Stable URL: http://www.jstor.org/stable/1391985
Page Count: 10
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This article examines the persistence of the variance, as measured by the generalized auto-regressive conditional heteroskedasticity (GARCH) model, in stock-return data. In particular, we investigate the extent to which persistence in variance may be overstated because of the existence of, and failure to take account of, deterministic structural shifts in the model. Both an analysis of daily stock-return data and a Monte Carlo simulation experiment confirm the hypothesis that GARCH measures of persistence in variance are sensitive to this type of model misspecification.
Journal of Business & Economic Statistics © 1990 American Statistical Association