Title

Selection of a model for exploring cross market linkages: A review of E-GARCH, markov-switching framework and structural break models

Document Type

Conference Proceeding

Publisher

Edith Cowan University

School

School of Business and Law

RAS ID

23290

Comments

Originally published as:

Do, A., Powell, R., Singh, A., & Yong, J. (2016, December). Selection of a Model for Exploring Cross Market Linkages: A Review of E-GARCH, Markov-switching Framework and Structural Break Models. In ECU Business Doctoral and Emerging Scholars Colloquium 2016(p. 1).

Original available here

Abstract

This article undertakes a literature review on the E-GARCH model, the Markov-switching framework and two structural break tests. Each model addresses different criteria and has different limitations, however, they complement each other nicely. The E-GARCH model deals with serial correlations and heteroskedasticity but implies spuriously high persistence in volatility if structural breaks are not accounted for. The Markov-switching framework can model specific regime cross-market behaviours and address the persistency in volatility effectively when combining with a GARCH model. Unknown structural breaks and impacts of a specific event can be tested using LSTR and SF models.

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