Exercise

News impact curve

Negative news about returns affect the variance more than positive news. The GJR GARCH model allows for asymmetric response of variance to positive and negative news. The news impact curve is a helpful tool to visualize the response of the variance to the surprise in returns.

Which of the following statements is wrong?

Instructions

50 XP

Possible answers

The blue line in the console corresponds to the quadratic news impact of a standard GARCH(1,1) model.

The presence of a leverage effect requires to use a skewed student t distribution.

The black plot in the console corresponds to a variance process with leverage effect.