Using monthly returns to model conditional heteroscedasticity

Nathan L. Joseph*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This empirical study examines the extent of non-linearity in a multivariate model of monthly financial series. To capture the conditional heteroscedasticity in the series, both the GARCH(1,1) and GARCH(1,1)-in-mean models are employed. The conditional errors are assumed to follow the normal and Student-t distributions. The non-linearity in the residuals of a standard OLS regression are also assessed. It is found that the OLS residuals as well as conditional errors of the GARCH models exhibit strong non-linearity. Under the Student density, the extent of non-linearity in the GARCH conditional errors was generally similar to those of the standard OLS. The GARCH-in-mean regression generated the worse out-of-sample forecasts.

Original languageEnglish
Pages (from-to)791-801
Number of pages11
JournalApplied Economics
Issue number7
Publication statusPublished - 10 May 2003


  • non-linearity
  • multivariate model
  • monthly financial series


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