Estimating ARCH Models when the Coefficients are Allowed to be Equal to Zero
DOI:
https://doi.org/10.17713/ajs.v37i1.284Abstract
In order to be consistent with volatility processes, the autoregressive conditional heteroscedastic (ARCH) models are constrained to have nonnegative coefficients. The estimators incorporating these constraints possess non standard asymptotic distributions when the true parameter has zero coefficients. This situation, where the parameter is on the boundary of the parameter space, must be considered to derive the critical values of tests that one or several ARCH coefficients are equal to zero. In this paper we compare the asymptotic theoretical properties, as well as the finite sample behavior, of the main estimation methods in this framework.
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