GARCH with omitted persistent covariate |
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| Authors: | Heejoon Han Joon Y Park |
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| Institution: | 1. Department of Economics, Kyung Hee University, Republic of Korea;2. Department of Economics, Indiana University, United States;3. Department of Economics, Sungkyunkwan University, Republic of Korea |
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| Abstract: | This paper analyzes the effect of omitting a persistent covariate in the GARCH-X model. In particular, we show that if the relevant persistent covariate is omitted and the usual GARCH(1,1) model is fitted, the model will be estimated approximately as an IGARCH model. This may well explain the ubiquitous evidence of the IGARCH in empirical volatility analysis. |
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| Keywords: | C22 C50 G12 |
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