The asymmetric GARCH model was developed to mimic the following feature of other models that is not captured in the standard GARCH formulation:
A) Mean reversion in returns.
B) Persistence in returns.
C) Skewness in returns.
D) Kurtosis in returns.

Question

Quizplus · Accepted Answer

The asymmetric GARCH model was developed to capture the skewness in returns, which is not captured in the standard GARCH formulation. It allows for different effects on volatility from positive and negative returns, which can be useful in modeling financial data where negative returns tend to have a greater impact on volatility than positive returns. Option A refers to mean reversion, which is typically captured in models like the ARIMA family of models. Option B refers to persistence, which is already captured in the standard GARCH model by including lagged squared error terms in the conditional variance equation. Option D refers to kurtosis, which can be addressed by using alternative models such as the EGARCH or TGARCH models.

The Asymmetric GARCH Model Was Developed to Mimic the Following