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

Bonsoo Koo, Oliver Linton

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)671-702
Number of pages32
JournalEconometric Theory
Volume31
Issue number4
DOIs
Publication statusPublished - 2015

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