Selection Criteria in Regime Switching Conditional Volatility Models

Thomas Chuffart (1, 2)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 EconomiX - EconomiX

A large number of nonlinear conditional heteroskedastic models have been proposed in the literature. Model selection is crucial to any statistical data analysis. In this article, we investigate whether the most commonly used selection criteria lead to choice of the right specification in a regime switching framework. We focus on two types of models: the Logistic Smooth Transition GARCH and the Markov-Switching GARCH models. Simulation experiments reveal that information criteria and loss functions can lead to misspecification ; BIC sometimes indicates the wrong regime switching framework. Depending on the Data Generating Process used in the experiments, great care is needed when choosing a criterion.

Mots clés: conditional volatility; GARCH; model selection; regime switching

Domaines: Sciences de l'Homme et Société; Economies et finances

Thomas Chuffart. Selection Criteria in Regime Switching Conditional Volatility Models. Econometrics, 2015, 3 (2), pp.289--316. ⟨10.3390/econometrics3020289⟩. ⟨hal-01457388⟩