Inclusion of a second constant term in the mean GARCH equation

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klotzle
Posts: 6
Joined: Mon Feb 16, 2009 1:29 pm

Inclusion of a second constant term in the mean GARCH equation

Postby klotzle » Mon Oct 02, 2017 4:48 pm

Hi all,

I would be very grateful if someone could help me in this issue:

I want to estimate following equation:

ARCH(THRSH=1, fixedlag=32) BOVA = C(1) + C(2)*VARGJR + C(3) + C(4)*VARGJR*BOVA(-1), where:

BOVA is my dependent variable, the returns of the BOVA 11 ETF traded on the Brazilian Stock exchange and VARGJR is the Variance estimated previously using the GJR Model and incorporated in my model.

The problem is the inclusion of the C(3) term. When I include it, the system acuses "near singular matrix"

I attach the eviews file.

Thanks in advance,

Marcelo
Attachments
bova11_premdisconto.wf1
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EViews Gareth
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Re: Inclusion of a second constant term in the mean GARCH equation

Postby EViews Gareth » Mon Oct 02, 2017 5:04 pm

Mathematically impossible.
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klotzle
Posts: 6
Joined: Mon Feb 16, 2009 1:29 pm

Re: Inclusion of a second constant term in the mean GARCH equation

Postby klotzle » Mon Oct 02, 2017 5:35 pm

Sorry, perhaps I did not formulate correctly my question:

I want to formulate following model:

Bova = ALPHA + THETHA* (GARCH) + (GAMMA 1 + GAMMA2*GARCH)* Bova(-1)

GARCH = Estimated as GJR (1,1) and beeing the variance

best Marcelo

P.S> This model is already estimated in the literature


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