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

[Alexios Ghalanos]

See the vignette section 2.2.3 equation 14. There is no confusion as to why gamma is the asymmetry effect (or more correctly the magnitude effect), whereas alpha is the sign effect (as the vignette states).

You can also check ugarchbench("published") and the underlying code for more details.

Alexios

Sent from my iPhone

> On Mar 29, 2016, at 8:27 AM, Joakim Lindboe Brüchmann . <joakimlb90 at gmail.com> wrote:
> 
> 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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> 
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