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Efficient Method of Moments Estimation of a Stochastic Volatility Model: A Monte Carlo Study, Journal of Econometrics

Abstract

We perform an extensive Monte Carlo study of efficient method of moments (EMM) estimation of a stochastic volatility model. EMM uses the expectation under the structural model of the score from an auxiliary model as moment conditions. We examine the sensitivity to the choice of auxiliary model using ARCH, GARCH, and EGARCH models for the score as well as nonparametric extensions. EMM efficiency approaches that of maximum likelihood for larger sample sizes. Inference is sensitive to the choice of auxiliary model in small samples, but robust in larger samples. Specification tests and 't-tests' show little size distortion.

Type

Article

Author(s)

Torben Andersen, Hyung-Jin Chung, Bent E. Sorensen

Date Published

1999

Citations

Andersen, Torben, Hyung-Jin Chung, and Bent E. Sorensen. 1999. Efficient Method of Moments Estimation of a Stochastic Volatility Model: A Monte Carlo Study. Journal of Econometrics.(1): 61-87.

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