The variance targeting estimator (VTE) for generalized autoregressive conditionally heteroskedastic (GARCH) processes has been proposed as a computationally simpler and misspecification-robust alternative to the quasi-maximum likelihood estimator (QMLE). In this paper we investigate the asymptotic behavior of the VTE when the stationary distribution of the GARCH process has infinite fourth moment. Existing studies of historical asset returns indicate that this may be a case of empirical relevance. Under suitable technical conditions, we establish a stable limit theory for the VTE, with the rate of convergence determined by the tails of the stationary distribution. This rate is slower than that achieved by the QMLE. The limit distribution of the VTE is nondegenerate but singular. We investigate the use of subsampling techniques for inference, but find that finite sample performance is poor in empirically relevant scenarios.
We thank the anonymous referee and seminar participants at Southern Methodist University for helpful comments.
Vaynman, I. and Beare, B.K. (2014), "Stable Limit Theory for the Variance Targeting Estimator", Essays in Honor of Peter C. B. Phillips (Advances in Econometrics, Vol. 33), Emerald Group Publishing Limited, pp. 639-672. https://doi.org/10.1108/S0731-905320140000033018Download as .RIS
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