Search results for "Law of total variance"
showing 2 items of 2 documents
On the Estimation of the Volatility-Growth Link
2012
It is common practice to estimate the volatility-growth link by specifying a standard growth equation such that the variance of the error term appears as an explanatory variable in this growth equation. The variance in turn is modeled by a second equation. Hardly any of existing applications of this framework includes exogenous controls in this second variance equation. Our theoretical findings suggest that the absence of relevant explanatory variables in the variance equation leads to a biased and inconsistent estimate of the volatility-growth link. Our simulations show that this effect is large. Once the appropriate controls are included in the variance equation consistency is restored. I…
Change-points detection for variance piecewise constant models
2011
A new approach based on the fit of a generalized linear regression model is introduced for detecting change-points in the variance of heteroscedastic Gaussian variables, with piecewise constant variance function. This approach overcome some limitations of both exact and approximate well-known methods that are based on successive application of search and tend to overestimate the real number of changes in the variance of the series. The proposed method just requires the computation of a gamma GLM with log-link, resulting in a very efficient algorithm even with large sample size and many change points to be estimated.