Identification of asymmetric conditional heteroscedasticity in the presence of outliers
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Title: | Identification of asymmetric conditional heteroscedasticity in the presence of outliers |
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Authors: | Carnero, M. Angeles | Pérez, Ana | Ruiz, Esther |
Research Group/s: | Economía Laboral y Econometría (ELYE) |
Center, Department or Service: | Universidad de Alicante. Departamento de Fundamentos del Análisis Económico |
Keywords: | Cross-correlations | Leverage effect | Robust correlations | EGARCH |
Knowledge Area: | Fundamentos del Análisis Económico |
Issue Date: | Mar-2016 |
Publisher: | Springer Berlin Heidelberg |
Citation: | SERIEs. 2016, 7(1): 179-201. doi:10.1007/s13209-015-0131-4 |
Abstract: | The identification of asymmetric conditional heteroscedasticity is often based on sample cross-correlations between past and squared observations. In this paper we analyse the effects of outliers on these cross-correlations and, consequently, on the identification of asymmetric volatilities. We show that, as expected, one isolated big outlier biases the sample cross-correlations towards zero and hence could hide true leverage effect. Unlike, the presence of two or more big consecutive outliers could lead to detecting spurious asymmetries or asymmetries of the wrong sign. We also address the problem of robust estimation of the cross-correlations by extending some popular robust estimators of pairwise correlations and autocorrelations. Their finite sample resistance against outliers is compared through Monte Carlo experiments. Situations with isolated and patchy outliers of different sizes are examined. It is shown that a modified Ramsay-weighted estimator of the cross-correlations outperforms other estimators in identifying asymmetric conditionally heteroscedastic models. Finally, the results are illustrated with an empirical application. |
Sponsor: | Financial support from the Spanish Government under project ECO2014-58434-P by the first author and under project ECO2012-32401 by the second and third authors, is gratefully acknowledged. The first and second authors also acknowledge financial support from Generalitat Valenciana under project PROMETEO/2013/037 and from Comunidad de Castilla y León under project VA066U13, respectively. |
URI: | http://hdl.handle.net/10045/54226 |
ISSN: | 1869-4187 (Print) | 1869-4195 (Online) |
DOI: | 10.1007/s13209-015-0131-4 |
Language: | eng |
Type: | info:eu-repo/semantics/article |
Rights: | © The Author(s) 2015. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. |
Peer Review: | si |
Publisher version: | http://dx.doi.org/10.1007/s13209-015-0131-4 |
Appears in Collections: | INV - ELYE - Artículos de Revistas |
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