Title: Multiplicative nonstationary volatility models with exogenous information
Authors: Cristina Amado - University of Minho (Portugal) [presenting]
Timo Terasvirta - Aarhus University (Denmark)
Abstract: A multiplicative nonstationary volatility model allowing for nonlinear behaviour driven by exogenous information is proposed. The new model extends the time-varying GARCH model by including an additional stochastic variable to allow the conditional variance to change smoothly between regimes. Modelling strategies for the proposed model are developed, and they rely on Lagrange multiplier tests. The estimation of the model is simplified by employing maximisation by parts and the asymptotic properties of the proposed estimators are also studied. Finite-sample properties of these procedures and statistical tests are examined by simulation. An empirical application illustrates the functioning of the model in practice.