Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
997807 | International Journal of Forecasting | 2008 | 17 Pages |
Abstract
It is shown empirically that mixed autoregressive moving average regression models with generalized autoregressive conditional heteroskedasticity (Reg-ARMA-GARCH models) can have multimodality in the likelihood that is caused by a dummy variable in the conditional mean. Maximum likelihood estimates at the local and global modes are investigated and turn out to be qualitatively different, leading to different model-based forecast intervals. In the simpler GARCH(p,q) regression model, we derive analytical conditions for bimodality of the corresponding likelihood. In that case, the likelihood is symmetrical around a local minimum. We propose a solution to avoid this bimodality.
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Authors
Jurgen A. Doornik, Marius Ooms,