A functional coefficient GARCH-M model

Abstract

ABSTRACTMotivated by the time varying property of the risk aversion and the functional coefficient regression model, a functional coefficient GARCH-M model is studied. The proposed GARCH-M type model gives a way to study the relationship between risk aversion and certain variable. An approach is given to estimate the model and some theoretical results are obtained. Simulations demonstrate that the method performs well. From the empirical studies, it is shown that the proposed model can better fit the considered data compared to the usual parametric models.