Date of Award
Master of Science (MS)
Economics and Finance
The GARCH model is widely used to forecast volatility for economic and financial Data. There are, however, several shortcomings of using the simple GARCH estimator alone for forecasting volatility. The major issue with the use of the default GARCH model is the persistence of variance that evolves through time and the simple GARCH model fails to address. This paper looks at the GARCH(1,1) model and consistent with Lamoureux and Lastrapes (1990), finds that it overstates the persistence of variance due to model misspecification, specifically the lack of structural shifts.
Romero Moreno, Aristides, "A Monte Carlo Study on the Persistence of Variance with Garch" (2016). All Graduate Plan B and other Reports. 827.