Naslov
Regime switching modelling of structural changes caused by financial crisis

Autori
Arnerić, Josip ; Erjavec, Nataša

Vrsta, podvrsta i kategorija rada
Radovi u zbornicima skupova, cjeloviti rad (in extenso), znanstveni

Izvornik
Proceedings of the 5th International Conference An Enterprise Odyssey : From Crisis to Prosperity - Challenges for Government and Business / Galetić, L., Spremić, M., Ivanov, M. - Zagreb : Ekonomski fakultet Sveučilišta u Zagrebu, 2010, 79-80

ISBN
953-6025-33-7

Skup
International Conference An Enterprise Odyssey: From Crisis to Prosperity - Challenges for Government and Business (5 ; 2010)

Mjesto i datum
Opatija, Hrvatska, 26.05.2010. - 29.05.2010

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Međunarodna recenzija

Ključne riječi
structural changes; Markov switching GARCH model; transition probabilities; financial crisis

Sažetak
The most successful and popular models in modelling time varying volatility are GARCH type models. However, when financial returns exhibit sudden jumps that are due to structural breaks the GARCH models show high volatility persistence, i.e. integrated behaviour of the conditional variance. In such situations models in which the parameters are allowed to change over time are more appropriate. Gray (1996) proposed an estimation of GARCH switching model with constant transition probabilities of Markov Chain. Later, a modification of Gray’s model was proposed by Klaassen (2002). This paper compares different GARCH models in terms of their ability to describe structural changes in returns caused by financial crisis at Croatian stock market. Fat-tailed conditional distribution of innovations is assumed. Moreover, state dependent degrees of freedom are assumed to model possible time varying kurtosis. The empirical analysis demonstrates that Markov regime switching GARCH model resolves the problem of excessive persistence and outperforms uni-regime GARCH models in forecasting volatility when sudden switching occurs in response to financial crisis. The data set used in the study consists of returns of the CROBEX index daily closing prices obtained from Zagreb Stock Exchange.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA