Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Sep, 2004, Volume 72, Issue 5

Likelihood‐Based Estimation of Latent Generalized ARCH Structures

https://doi.org/10.1111/j.1468-0262.2004.00541.x
p. 1481-1517

Gabriele Fiorentini, Enrique Sentana, Neil Shephard

GARCH models are commonly used as latent processes in econometrics, financial economics, and macroeconomics. Yet no exact likelihood analysis of these models has been provided so far. In this paper we outline the issues and suggest a Markov chain Monte Carlo algorithm which allows the calculation of a classical estimator via the simulated EM algorithm or a Bayesian solution in () computational operations, where denotes the sample size. We assess the performance of our proposed algorithm in the context of both artificial examples and an empirical application to 26 UK sectorial stock returns, and compare it to existing approximate solutions.


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