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Properties of the Autocorrelation Function of Squared Observations for Second‐order Garch Processes Under Two Sets of Parameter Constraints
Author(s) -
He Changli,
Terasvirta Timo
Publication year - 1999
Publication title -
journal of time series analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.576
H-Index - 54
eISSN - 1467-9892
pISSN - 0143-9782
DOI - 10.1111/1467-9892.00123
Subject(s) - autoregressive conditional heteroskedasticity , autocorrelation , mathematics , conditional variance , variance (accounting) , statistics , function (biology) , order (exchange) , econometrics , economics , volatility (finance) , accounting , finance , evolutionary biology , biology
Non‐negativity constraints on the parameters of the GARCH( p , q ) process may be relaxed without giving up the requirement that the conditional variance remains non‐negative with probability 1. In this paper we look into the consequences of adopting these less severe constraints in the GARCH(2, 2) case and its two second‐order special cases, GARCH(2, 1) and GARCH(1, 2). This is done by comparing the autocorrelation function of squared observations under these two sets of constraints. The less severe constraints allow more flexibility in the shape of the autocorrelation function than the constraints restricting the parameters to be non‐negative.