Unbiased QML Estimation of Log-GARCH Models in the Presence of Zero Returns

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dc.contributor.author Sucarrat, Genaro
dc.contributor.author Escribano, Álvaro
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned 2013-11-11T14:30:40Z
dc.date.available 2013-11-11T14:30:40Z
dc.date.issued 2013-09-01
dc.identifier.issn 2340-5031
dc.identifier.uri http://hdl.handle.net/10016/17909
dc.description.abstract A critique that has been directed towards the log-GARCH model is that its logvolatility specification does not exist in the presence of zero returns. A common "remedy" is to replace the zeros with a small (in the absolute sense) non-zero value. However, this renders Quasi Maximum Likelihood (QML) estimation asymptotically biased. Here, we propose a solution to the case where actual returns are equal to zero with probability zero, but zeros nevertheless are observed because of measurement error (due to missing values, discreteness approximisation error, etc.). The solution treats zeros as missing values and handles these by combining QML estimation via the ARMA representation with the Expectation-maximisation (EM) algorithm. Monte Carlo simulations confirm that the solution corrects the bias, and several empirical applications illustrate that the biascorrecting estimator can make a substantial difference.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries Working Papers. Economics. WE
dc.relation.ispartofseries 13-21
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other ARCH
dc.subject.other Exponential GARCH
dc.subject.other Log-GARCH
dc.subject.other ARMA
dc.subject.other Expectation-Maximization (EM)
dc.title Unbiased QML Estimation of Log-GARCH Models in the Presence of Zero Returns
dc.type workingPaper
dc.subject.jel C22
dc.subject.jel C58
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
dc.type.version submitedVersion
dc.identifier.uxxi DT/0000001136
dc.identifier.repec we1321
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