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Federal Reserve Bank of Boston
Working Papers
GARCH-based identification of triangular systems with an application to the CAPM: still living with the roll critique
Todd Prono
Abstract

This paper presents a new method for identifying triangular systems of time-series data. Identification is the product of a bivariate GARCH process. Relative to the literature on GARCH-based identification, this method distinguishes itself both by allowing for a time-varying covariance and by not requiring a complete estimation of the GARCH parameters. Estimation follows OLS and standard univariate GARCH and ARMA techniques, or GMM. A Monte Carlo study of the GMM estimator is provided. The identification method is then applied in testing a conditional version of the CAPM. ; Quantitative Analysis Unit Working Paper QAU07-2


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Todd Prono, GARCH-based identification of triangular systems with an application to the CAPM: still living with the roll critique, Federal Reserve Bank of Boston, Working Papers 07-1, 2006.
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Keywords: Capital assets pricing model ; Time-series analysis
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