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Original Articles

IGARCH effects: an interpretation

Pages 745-748 | Published online: 06 Oct 2010
 

Abstract

This article shows how IGARCH effects can arise as an artifact of unaccounted structural change. Using daily returns for the DM/US$ and Yen/US$ exchange rates, the finding is shown to have empirical relevance. GARCH models appear to be useful approximations, for short-term forecasting, to a data generating process that shows time varying conditional variance due to switching heteroscedasticity.

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