OLS + HAC std err VS. conditional mean equation from GARCH

For econometric discussions not necessarily related to EViews.

Moderators: EViews Gareth, EViews Moderator

Gin
Posts: 22
Joined: Wed Oct 19, 2016 10:26 am

OLS + HAC std err VS. conditional mean equation from GARCH

Postby Gin » Thu Nov 17, 2016 1:45 pm

Hi all,

I have couple of questions regarding the efficiency gain using GARCH modeling campared to OLS with HAC standard errors.

1. If we compare the coefficient estimates from a regression using OLS and that from the same equation using GARCH modeling. They sometimes differ substaintially. Why is this the case?

2. For serially correlated data, we can either use HAC standard errors (if we estimate the equation by OLS) or use GARCH modeling which gives the condtional mean and variance at the same time. Then the standard errors for the coefficients in the condtional mean equation will be derived from the conditional variance equation. What exactly is the efficiency gain if we directly estimate the GARCH model? (I only know that HAC has some prolem if the sample size is small..)

3. If the results from the conditional mean equation in the GARCH model and the results from (the same equation) estimated by OLS with HAC standard errors differ should one always prefer the conditional mean equation from the GARCH model?

Looking forward for discussions!

Thanks!

startz
Non-normality and collinearity are NOT problems!
Posts: 3775
Joined: Wed Sep 17, 2008 2:25 pm

Re: OLS + HAC std err VS. conditional mean equation from GARCH

Postby startz » Thu Nov 17, 2016 2:06 pm

GARCH is a GLS estimate. HAC is an adjustment to the standard errors of OLS. If GARCH is a good specification, it's going to be more efficient than OLS.


Return to “Econometric Discussions”

Who is online

Users browsing this forum: No registered users and 21 guests