[R-SIG-Finance] Garch fitting with mean regressors

[Zeno Adams]

On Wed, 16 Apr 2008 10:11:27 +0100
 Patrick Burns <patrick at burns-stat.com> wrote:
> You can do the regression on the returns and
> then fit the garch model on the residuals.  That
> will most probably be very close to the result
> if you did it "right".
> 
> 


I wonder if you could really do that. After all you would do an
estimation ignoring heteroscedasticity in the returns which biases the
parameter estimates. If you include the exogenous in the mean equation
of a garch model then you take conditional heteroscedasticity into
account. This is easy to do in most commercial software (e.g. EViews,
RATS etc.)

Zeno