[R-SIG-Finance] Asymmetry parameter misspecification in EGARCH model using the rugarch package

[Joakim Lindboe Brüchmann .]

Dear Alexios,

First of all thanks for a wonderful package that I frequently use.

I have estimated an ARMA(1,1)-EGARCH(1) model, and was puzzled by the
outcome for a very long time since I got an insignificant estimate for the
|z_t-1| term (regular ARCH effects) while the asymmetric parameter in front
of z_t-1 was indeed statistically significant. My data looks like normal
financial data.

I based this on the specifications using the ?ugarchspec function in my
script where it says:

*Variance Model (GJR, EGARCH)*
- assymetry term: gamma1

By drawing the news impact curves and reviewing my code and plots, I came
to the conclusion that there was no asymmetry apparent from the data but
that there indeed should bed regular ARCH effects. By running the code for
gjrGARCH also, I noticed that this model confirmed my hypothesis.

Thereby my question:
Isn't there an error in the instructions? Doesn't gamma1 represent regular
ARCH effects while alpha1 is the correct leverage parameter representing
asymmetry?

Best Regards,
Joakim

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