Faculty Publications

Estimating Egarch-M Models: Science Or Art?

Document Type

Article

Journal/Book/Conference Title

Quarterly Review of Economics and Finance

Volume

38

Issue

2

First Page

167

Last Page

180

Abstract

This paper shows that the EGARCH-M model should be estimated with caution. Regardless of the assumption made regarding the conditional error distribution, the EGARCH-M model is sensitive to the choice of starting values and the degree of computer precision. However, a simple forecasting example shows that these issues only become a concern when the EGARCH-M model is estimated on a high-precision computer, under the assumption that the conditional errors follow a generalized error distribution. The instability of the risk aversion parameter in the mean equation is the greatest influence on these results.

Department

Department of Finance

Original Publication Date

1-1-1998

DOI of published version

10.1016/s1062-9769(99)80110-0

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