Abstract: Motivated by regularities observed in time series of returns on speculative assets, we develop an asymptotic theory of GARCH(1,1) processes {y_k} defined by the equations y_k=sigma_kepsilon_k, sigma_k^2=omega +alpha y_{k-1}^2+�eta sigma_{k-1}^2 for which the sum alpha +�eta approaches unity as the number of available observations tends to infinity. We call such sequences near-integrated. We show that the asymptotic behavior of near-integrated GARCH(1,1) processes critically depends on the sign of gamma :=alpha +�eta -1. We find assumptions under which the solutions exhibit increasing oscillations and show that these oscillations grow approximately like a power function if gamma leq 0 and exponentially if gamma >0. We establish an additive representation for the near-integrated GARCH(1,1) processes which is more convenient to use than the traditional multiplicative Volterra series expansion.
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- ARCH models as diffusion approximations
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Cited in
(8)- Tests for volatility shifts in GARCH against long-range dependence
- ARCH/GARCH with persistent covariate: asymptotic theory of MLE
- Sequential monitoring for changes from stationarity to mild non-stationarity
- Testing for randomness in a random coefficient autoregression model
- NEAR-INTEGRATED RANDOM COEFFICIENT AUTOREGRESSIVE TIME SERIES
- Limit theory for moderate deviation from integrated GARCH processes
- On estimation in conditional heteroskedastic time series models under non-normal distribu\-tions
- GARCH (1,1) processes are near epoch dependent
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