I run GARCH (1,1) to capture volatility spillover between spot and futures market. I find most of the coefficients are positive and some are negative. My doubt is why these coefficients are negative? Is there any justification on negative co-efficient? How to interpret and how to solve this problem? the assumption of GARCH model is that all co-efficients are positive. Can any one please clarify my doubt. should I go for any other model?
You can employ the exponential GARCH (EGARCH) model, suggested by Nelson (1991). EGARCH model allows the conditional variance to be a function of both the size and the sign of lagged residuals in order to mimic the leverage effect.
Unlike the GARCH model, the EGARCH model places no restrictions on the estimated parameters to ensure non-negativity of the conditional variance.
Dear Thomas, I am grateful to your answer. I use EVIEWS-9 for estimation. My mean and variance equations are given in an attached file. Please reply me what should I do?
Dear Dr. Thomas,
Please find the result in a word file and suggest me accordingly.
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