Misspecification and domain issues in fitting Garch(1,1) models: a Monte Carlo investigation

Leonardo Bottolo (1)

1 Institute for Mathematical Sciences

In this work we investigate the impact of misspecification of the innovations in fitting Garch$(1,1)$ models. We show that an incorrect specification of the innovations together with the reduction of the parameter space to the weak stationarity region, can give rise to a spurious IGARCH effect. We address this point through an extensive Monte Carlo simulation study. We also analyse the impact of misspecification on forecasted volatilities, showing that innovations with light tails can lead to a remarkable overestimate of volatilities.

Mots clés: Physical Sciences

Leonardo Bottolo. Misspecification and domain issues in fitting Garch(1,1) models: a Monte Carlo investigation. Communications in Statistics - Simulation and Computation, 2008, 38 (01), pp.31-45. ⟨10.1080/03610910802395653⟩. ⟨hal-00514333⟩