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Specify GJR Models

Default GJR Model

The default GJR(P,Q) model in Econometrics Toolbox™ is of the form

εt=σtzt,

with Gaussian innovation distribution and

σt2=κ+i=1Pγiσti2+j=1Qαjεtj2+j=1QξjI[εtj<0]εtj2.

The indicator function I[εtj<0] equals 1 if εtj<0 and 0 otherwise. The default model has no mean offset, and the lagged variances and squared innovations are at consecutive lags.

You can specify a model of this form using the shorthand syntax gjr(P,Q). For the input arguments P and Q, enter the number of lagged variances (GARCH terms), P, and lagged squared innovations (ARCH and leverage terms), Q, respectively. The following restrictions apply:

  • P and Q must be nonnegative integers.

  • If P > 0, then you must also specify Q > 0

When you use this shorthand syntax, gjr creates a gjr model with these default property values.

PropertyDefault Value
PNumber of GARCH terms, P
QNumber of ARCH and leverage terms, Q
Offset0
ConstantNaN
GARCHCell vector of NaNs
ARCHCell vector of NaNs
LeverageCell vector of NaNs
Distribution"Gaussian"

To assign nondefault values to any properties, you can modify the created model using dot notation.

To illustrate, consider specifying the GJR(1,1) model

εt=σtzt,

with Gaussian innovation distribution and

σt2=κ+γ1σt12+α1εt12+ξ1I[εt1<0]εt12.

Mdl = gjr(1,1)
Mdl = 
  gjr with properties:

     Description: "GJR(1,1) Conditional Variance Model (Gaussian Distribution)"
    Distribution: Name = "Gaussian"
               P: 1
               Q: 1
        Constant: NaN
           GARCH: {NaN} at lag [1]
            ARCH: {NaN} at lag [1]
        Leverage: {NaN} at lag [1]
          Offset: 0

The created model, Mdl, has NaNs for all model parameters. A NaN value signals that a parameter needs to be estimated or otherwise specified by the user. All parameters must be specified to forecast or simulate the model.

To estimate parameters, input the model (along with data) to estimate. This returns a new fitted gjr model. The fitted model has parameter estimates for each input NaN value.

Calling gjr without any input arguments returns a GJR(0,0) model specification with default property values:

DefaultMdl = gjr
DefaultMdl = 
  gjr with properties:

     Description: "GJR(0,0) Conditional Variance Model (Gaussian Distribution)"
    Distribution: Name = "Gaussian"
               P: 0
               Q: 0
        Constant: NaN
           GARCH: {}
            ARCH: {}
        Leverage: {}
          Offset: 0

Specify Default GJR Model

This example shows how to use the shorthand gjr(P,Q) syntax to specify the default GJR(P, Q) model, εt=σtzt with a Gaussian innovation distribution and

σt2=κ+i=1Pγiσt-i2+j=1Qαjεt-j2+j=1QξjI[εt-j<0]εt-j2.

By default, all parameters in the created model have unknown values.

Specify the default GJR(1,1) model:

Mdl = gjr(1,1)
Mdl = 
  gjr with properties:

     Description: "GJR(1,1) Conditional Variance Model (Gaussian Distribution)"
    Distribution: Name = "Gaussian"
               P: 1
               Q: 1
        Constant: NaN
           GARCH: {NaN} at lag [1]
            ARCH: {NaN} at lag [1]
        Leverage: {NaN} at lag [1]
          Offset: 0

The output shows that the created model, Mdl, has NaN values for all model parameters: the constant term, the GARCH coefficient, the ARCH coefficient, and the leverage coefficient. You can modify the created model using dot notation, or input it (along with data) to estimate.

Using Name-Value Pair Arguments

The most flexible way to specify GJR models is using name-value pair arguments. You do not need, nor are you able, to specify a value for every model property. gjr assigns default values to any model properties you do not (or cannot) specify.

The general GJR(P,Q) model is of the form

yt=μ+εt,

where εt=σtzt and

σt2=κ+i=1Pγiσti2+j=1Qαjεtj2+j=1QξjI[εtj<0]εtj2.

The innovation distribution can be Gaussian or Student’s t. The default distribution is Gaussian.

In order to estimate, forecast, or simulate a model, you must specify the parametric form of the model (e.g., which lags correspond to nonzero coefficients, the innovation distribution) and any known parameter values. You can set any unknown parameters equal to NaN, and then input the model to estimate (along with data) to get estimated parameter values.

gjr (and estimate) returns a model corresponding to the model specification. You can modify models to change or update the specification. Input models (with no NaN values) to forecast or simulate for forecasting and simulation, respectively. Here are some example specifications using name-value arguments.

ModelSpecification
  • yt=εt

  • εt=σtzt

  • zt Gaussian

  • σt2=κ+γ1σt12+α1εt12+ξ1I[εt1<0]εt12

gjr('GARCH',NaN,'ARCH',NaN,...
'Leverage',NaN)
or gjr(1,1)
  • yt=μ+εt

  • εt=σtzt

  • zt Student’s t with unknown degrees of freedom

  • σt2=κ+γ1σt12+α1εt12+ξ1I[εt1<0]εt12

gjr('Offset',NaN,'GARCH',NaN,...
'ARCH',NaN,'Leverage',NaN,...
'Distribution','t')
  • yt=εt

  • εt=σtzt

  • zt Student’s t with eight degrees of freedom

  • σt2=0.1+0.6σt12+0.3εt12+0.05I[εt1<0]εt12

gjr('Constant',0.1,'GARCH',0.6,...
'ARCH',0.3,'Leverage',0.05,...
'Distribution',...
struct('Name','t','DoF',8))

Here is a full description of the name-value arguments you can use to specify GJR models.

Note

You cannot assign values to the properties P and Q. egarch sets P equal to the largest GARCH lag, and Q equal to the largest lag with a nonzero squared innovation coefficient, including ARCH and leverage coefficients.

Name-Value Arguments for GJR Models

NameCorresponding GJR Model Term(s)When to Specify
OffsetMean offset, μTo include a nonzero mean offset. For example, 'Offset',0.2. If you plan to estimate the offset term, specify 'Offset',NaN.
By default, Offset has value 0 (meaning, no offset).
ConstantConstant in the conditional variance model, κTo set equality constraints for κ. For example, if a model has known constant 0.1, specify 'Constant',0.1.
By default, Constant has value NaN.
GARCHGARCH coefficients, γ1,,γPTo set equality constraints for the GARCH coefficients. For example, to specify a GJR(1,1) model with γ1=0.6, specify 'GARCH',0.6.
You only need to specify the nonzero elements of GARCH. If the nonzero coefficients are at nonconsecutive lags, specify the corresponding lags using GARCHLags.
Any coefficients you specify must satisfy all stationarity constraints.
GARCHLagsLags corresponding to the nonzero GARCH coefficientsGARCHLags is not a model property.
Use this argument as a shortcut for specifying GARCH when the nonzero GARCH coefficients correspond to nonconsecutive lags. For example, to specify nonzero GARCH coefficients at lags 1 and 3, e.g., nonzero γ1 and γ3, specify 'GARCHLags',[1,3].
Use GARCH and GARCHLags together to specify known nonzero GARCH coefficients at nonconsecutive lags. For example, if γ1=0.3 and γ3=0.1, specify 'GARCH',{0.3,0.1},'GARCHLags',[1,3]
ARCHARCH coefficients, α1,,αQTo set equality constraints for the ARCH coefficients. For example, to specify a GJR(1,1) model with α1=0.3, specify 'ARCH',0.3.
You only need to specify the nonzero elements of ARCH. If the nonzero coefficients are at nonconsecutive lags, specify the corresponding lags using ARCHLags.
ARCHLagsLags corresponding to nonzero ARCH coefficients

ARCHLags is not a model property.

Use this argument as a shortcut for specifying ARCH when the nonzero ARCH coefficients correspond to nonconsecutive lags. For example, to specify nonzero ARCH coefficients at lags 1 and 3, e.g., nonzero α1 and α3, specify 'ARCHLags',[1,3].

Use ARCH and ARCHLags together to specify known nonzero ARCH coefficients at nonconsecutive lags. For example, if α1=0.4 and α3=0.2, specify 'ARCH',{0.4,0.2},'ARCHLags',[1,3]

LeverageLeverage coefficients, ξ1,,ξQ

To set equality constraints for the leverage coefficients. For example, to specify a GJR(1,1) model with ξ1=0.1 specify 'Leverage',0.1.

You only need to specify the nonzero elements of Leverage. If the nonzero coefficients are at nonconsecutive lags, specify the corresponding lags using LeverageLags.

LeverageLagsLags corresponding to nonzero leverage coefficients

LeverageLags is not a model property.

Use this argument as a shortcut for specifying Leverage when the nonzero leverage coefficients correspond to nonconsecutive lags. For example, to specify nonzero leverage coefficients at lags 1 and 3, e.g., nonzero ξ1 and ξ3, specify 'LeverageLags',[1,3].

Use Leverage and LeverageLags together to specify known nonzero leverage coefficients at nonconsecutive lags. For example, if ξ1=0.1 and ξ3=0.05, specify 'Leverage',{0.1,0.05},'LeverageLags',[1,3].

DistributionDistribution of the innovation process

Use this argument to specify a Student’s t innovation distribution. By default, the innovation distribution is Gaussian.

For example, to specify a t distribution with unknown degrees of freedom, specify 'Distribution','t'.

To specify a t innovation distribution with known degrees of freedom, assign Distribution a data structure with fields Name and DoF. For example, for a t distribution with nine degrees of freedom, specify 'Distribution',struct('Name','t','DoF',9).

Specify GJR Model Using Econometric Modeler App

You can specify the lag structure, innovation distribution, and leverages of GJR models using the Econometric Modeler app. The app treats all coefficients as unknown and estimable, including the degrees of freedom parameter for a t innovation distribution.

At the command line, open the Econometric Modeler app.

econometricModeler

Alternatively, open the app from the apps gallery (see Econometric Modeler).

In the app, you can see all supported models by selecting a time series variable for the response in the Data Browser. Then, on the Econometric Modeler tab, in the Models section, click the arrow to display the models gallery.

The GARCH Models section contains all supported conditional variance models. To specify a GJR model, click GJR. The GJR Model Parameters dialog box appears.

Adjustable parameters include:

  • GARCH Degree – The order of the GARCH polynomial.

  • ARCH Degree – The order of the ARCH polynomial. The value of this parameter also specifies the order of the leverage polynomial.

  • Include Offset – The inclusion of a model offset.

  • Innovation Distribution – The innovation distribution.

As you adjust parameter values, the equation in the Model Equation section changes to match your specifications. Adjustable parameters correspond to input and name-value pair arguments described in the previous sections and in the gjr reference page.

For more details on specifying models using the app, see Fitting Models to Data and Specifying Lag Operator Polynomials Interactively.

Specify GJR Model with Mean Offset

This example shows how to specify a GJR(P, Q) model with a mean offset. Use name-value pair arguments to specify a model that differs from the default model.

Specify a GJR(1,1) model with a mean offset,

yt=μ+εt,

where εt=σtzt and

σt2=κ+γ1σt-12+α1εt-12+ξ1I[εt-1<0]εt-12.

Mdl = gjr('Offset',NaN,'GARCHLags',1,'ARCHLags',1,...
    'LeverageLags',1)
Mdl = 
  gjr with properties:

     Description: "GJR(1,1) Conditional Variance Model with Offset (Gaussian Distribution)"
    Distribution: Name = "Gaussian"
               P: 1
               Q: 1
        Constant: NaN
           GARCH: {NaN} at lag [1]
            ARCH: {NaN} at lag [1]
        Leverage: {NaN} at lag [1]
          Offset: NaN

The mean offset appears in the output as an additional parameter to be estimated or otherwise specified.

Specify GJR Model with Nonconsecutive Lags

This example shows how to specify a GJR model with nonzero coefficients at nonconsecutive lags.

Specify a GJR(3,1) model with nonzero GARCH terms at lags 1 and 3. Include a mean offset.

Mdl = gjr('Offset',NaN,'GARCHLags',[1,3],'ARCHLags',1,...
    'LeverageLags',1)
Mdl = 
  gjr with properties:

     Description: "GJR(3,1) Conditional Variance Model with Offset (Gaussian Distribution)"
    Distribution: Name = "Gaussian"
               P: 3
               Q: 1
        Constant: NaN
           GARCH: {NaN NaN} at lags [1 3]
            ARCH: {NaN} at lag [1]
        Leverage: {NaN} at lag [1]
          Offset: NaN

The unknown nonzero GARCH coefficients correspond to lagged variances at lags 1 and 3. The output shows only the nonzero coefficients.

Display the value of GARCH:

Mdl.GARCH
ans = 1x3 cell array
    {[NaN]}    {[0]}    {[NaN]}

The GARCH cell array returns three elements. The first and third elements have value NaN, indicating these coefficients are nonzero and need to be estimated or otherwise specified. By default, gjr sets the interim coefficient at lag 2 equal to zero to maintain consistency with MATLAB® cell array indexing.

Specify GJR Model with Known Parameter Values

This example shows how to specify a GJR model with known parameter values. You can use such a fully specified model as an input to simulate or forecast.

Specify the GJR(1,1) model

σt2=0.1+0.6σt-12+0.2εt-12+0.1I[εt-1<0]εt-12

with a Gaussian innovation distribution.

Mdl = gjr('Constant',0.1,'GARCH',0.6,'ARCH',0.2,...
    'Leverage',0.1)
Mdl = 
  gjr with properties:

     Description: "GJR(1,1) Conditional Variance Model (Gaussian Distribution)"
    Distribution: Name = "Gaussian"
               P: 1
               Q: 1
        Constant: 0.1
           GARCH: {0.6} at lag [1]
            ARCH: {0.2} at lag [1]
        Leverage: {0.1} at lag [1]
          Offset: 0

Because all parameter values are specified, the created model has no NaN values. The functions simulate and forecast don't accept input models with NaN values.

Specify GJR Model with t Innovation Distribution

This example shows how to specify a GJR model with a Student's t innovation distribution.

Specify a GJR(1,1) model with a mean offset,

yt=μ+εt,

where εt=σtzt and

σt2=κ+γ1σt-12+α1εt-12+ξ1I[εt-1<0]εt-12.

Assume zt follows a Student's t innovation distribution with 10 degrees of freedom.

tDist = struct('Name','t','DoF',10);
Mdl = gjr('Offset',NaN,'GARCHLags',1,'ARCHLags',1,...
              'LeverageLags',1,'Distribution',tDist)
Mdl = 
  gjr with properties:

     Description: "GJR(1,1) Conditional Variance Model with Offset (t Distribution)"
    Distribution: Name = "t", DoF = 10
               P: 1
               Q: 1
        Constant: NaN
           GARCH: {NaN} at lag [1]
            ARCH: {NaN} at lag [1]
        Leverage: {NaN} at lag [1]
          Offset: NaN

The value of Distribution is a struct array with field Name equal to 't' and field DoF equal to 10. When you specify the degrees of freedom, they aren't estimated if you input the model to estimate.

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