Detection and Modeling of Asymmetric GARCH Effects in a Discrete-Time Series

摘要

This study traced the patterns of discrete time series over time with respect to GARCH effect and asymmetric GARCH effect. Particularly, we paid attention to the weakness of the GARCH model in modeling the asymmetry of GARCH effect. In order to handle this weakness, we applied the sign and size bias test which comprises sign bias test, negative size bias test, positive size bias test, and Lagrange Multiplier test in order to identify the asymmetric effect in the residual series of the GARCH model. Where the asymmetric effect is present and significant, we fit the asymmetric GARCH models. Exploring the share price returns of Zenith bank plc obtained from the Nigerian Stock Exchange from January 4, 2006 to May 26, 2015, our findings indicated the presence of GARCH effect and was adequately captured by GARCH(0,1) model. Also, the sign and size bias test for asymmetric GARCH effect on the residual series of GARCH(0,1) model showed a joint significance as indicated by the Lagrange Multiplier test. Moreover, the asymmetric GARCH effect was adequately captured by EGARCH(0,1) and TGARCH(0,1) models. In addition, the significance of the size bias test indicated that the size of negative and positive returns has an impact on the predicted heteroscedasticity. Hence, we concluded that GARCH(0,1) model adequately predicted the GARCH effect but failed to capture the asymmetric effect in the share price returns of the discrete series. However, this was complemented by both EGARCH(0,1) and TGARCH(0,1) models with the size of both the negative and positive effects taken into consideration.