Solved – Interpret Eviews Output: EGARCH – ARCH and GARCH term

eviewsgarchinterpretation

I am having some difficultires, figuering out what (and why) the ARCH term in the following output is:
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Please note that above's output is from Introductory Econometrics for Finance from p. 407

  1. I figuered C(5) out to be the GARCH term, but I am uncertain about
    the ARCH term. Do you know what it is? And if so: How did you know
    it?
  2. If the sum of the ARCH and GARCH term is =>1, does that mean it is non-stationary (i.e. has a unit root)?
  3. Do I interpret the ARCH and GARCH term? I think the ARCH term can be interpreted as the effect of the previous error term on the current error term?

Best Answer

ARCH term is the square of past residual factors (e2) while GARCH is the past volatility (variance H) for general GARCH model and in the case of E-GARCH, it is the past values of log variance (H). You are right, C(5) is for the GARCH term. C(3) and C(4) is for the ARCH term, but the absolute value in C(3) is for the effect of the size, while C(4) is for the effects of sign (bad news vs. good news)

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