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Faculty of Economics

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Koo, B., and Linton, O.

Let's get lade: robust estimation of semiparametric multiplicative volatility models

Econometric Theory

Vol. 31(4) pp. 671-702 (2015)

Abstract: We investigate a model in which we connect slowly time varying unconditional long-run volatility with short-run conditional volatility whose representation is given as a semi-strong GARCH(1,1) process with heavy tailed errors. We focus on robust estimation of both long-run and short-run volatilities. Our estimation is semiparametric since the long-run volatility is totally unspecified whereas the short-run conditional volatility is a parametric semi-strong GARCH(1,1) process. We propose different robust estimation methods for nonstationary and strictly stationary GARCH parameters with nonparametric long-run volatility function. Our estimation is based on a two-step LAD procedure. We establish the relevant asymptotic theory of the proposed estimators. Numerical results lend support to our theoretical results.

Author links: Oliver Linton  

Publisher's Link:¶mdict=en-US

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