Limit Theory for Moderate Deviation from Integrated GARCH Processes

06/04/2018

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by   Yubo Tao, et al.

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This paper develops the limit theory of the GARCH(1,1) process that moderately deviates from IGARCH process towards both stationary and explosive regimes. The GARCH(1,1) process is defined by equations u_t = σ_t ε_t, σ_t^2 = ω + α_n u_t-1^2 + β_nσ_t-1^2 and α_n + β_n approaches to unity as sample size goes to infinity. The asymptotic theory developed in this paper extends Berkes et al. (2005) by allowing the parameters to have a slower convergence rate. The results can be applied to unit root test for processes with mildly-integrated GARCH innovations (e.g. Boswijk (2001), Cavaliere and Taylor (2007, 2009)) and deriving limit theory of estimators for models involving mildly-integrated GARCH processes (e.g. Jensen and Rahbek (2004), Francq and Zakoïan (2012, 2013)).