The Relation between Conditionally Heteroskedastic Factor Models and Factor GARCH Models

The Econometrics Journal 1, pp. 1-9, 1998

Posted: 26 May 1998

See all articles by Enrique Sentana

Enrique Sentana

Centro de Estudios Monetarios y Financieros (CEMFI); Financial Markets Group; Centre for Economic Policy Research (CEPR)

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Abstract

The factor GARCH model of Engle (1987) and the latent factor ARCH model of Diebold and Nerlove (1989) have become rather popular multivariate volatility parameterizations due to their parsimony, and the commonality in volatility movements across different financial series. Nevertheless, there is some confusion in the literature between them. The purpose of this paper is to make clear their similarities and differences by providing a formal nesting of the two models, which can be exploited to analyze their statistical features in a more general context. At the same time, their differences may be important in the interpretation of empirical results.

JEL Classification: C32

Suggested Citation

Sentana, Enrique, The Relation between Conditionally Heteroskedastic Factor Models and Factor GARCH Models. The Econometrics Journal 1, pp. 1-9, 1998. Available at SSRN: https://ssrn.com/abstract=81205

Enrique Sentana (Contact Author)

Centro de Estudios Monetarios y Financieros (CEMFI) ( email )

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+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~sentana/

Financial Markets Group

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Centre for Economic Policy Research (CEPR)

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