Identification of asymmetric conditional heteroscedasticity in the presence of outliers

• M. Angeles Carnero ^[1] ; Ana Pérez ^[2] ; Esther Ruiz ^[3]
  1. [1] Universitat d'Alacant

     Universitat d'Alacant

     Alicante, España

     
  2. [2] Universidad de Valladolid

     Universidad de Valladolid

     Valladolid, España

     
  3. [3] Universidad Carlos III de Madrid

     Universidad Carlos III de Madrid

     Madrid, España

     

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• Localización: SERIEs : Journal of the Spanish Economic Association, ISSN 1869-4195, Vol. 7, Nº. 1, 2016 (Ejemplar dedicado a: Special Issue in Honor of Agustín Maravall), págs. 179-201
• Idioma: inglés
• DOI: 10.1007/s13209-015-0131-4
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• Resumen

  • The identification of asymmetric conditional heteroscedasticity is often based on sample cross-correlations between past and squared observations. In this paper we analyse the effects of outliers on these cross-correlations and, consequently, on the identification of asymmetric volatilities.We showthat, as expected, one isolated big outlier biases the sample cross-correlations towards zero and hence could hide true leverage effect.Unlike, the presence of two ormore big consecutive outliers could lead to detecting spurious asymmetries or asymmetries of the wrong sign.We also address the problem of robust estimation of the cross-correlations by extending some popular robust estimators of pairwise correlations and autocorrelations. Their finite simple resistance against outliers is compared through Monte Carlo experiments. Situations with isolated and patchy outliers of different sizes are examined. It is shown that a modified Ramsay-weighted estimator of the cross-correlations outperforms other estimators in identifying asymmetric conditionally heteroscedastic models. Finally, the results are illustrated with an empirical application.