Discussions on the Zero-drift GARCH model

Evidence from an Markov regime-switching extension

Lingbing Feng, Tong Fu*, Yanlin Shi, Zili Wang

*Corresponding author for this work

Research output: Contribution to journalArticle


A Zero-drift GARCH (ZD-GARCH) model is recently proposed to study conditional and unconditional heteroskedasticity together. Despite its attractive statistical properties, our research demonstrate that the stability test based on this model fails when structural changes are present. To overcome this issue, we allow the Markov regime-switching (MRS) feature within the ZD-GARCH framework and propose an MRS-ZD-GARCH model. The powerfulness of this approach is evidenced via simulation studies. Using the S&P 500 empirical data, we show that the new model can also outperform the ZD-GARCH model in practice.

Original languageEnglish
Article number101713
JournalFinance Research Letters
Early online date10 Aug 2020
Publication statusE-pub ahead of print - 10 Aug 2020


  • Heteroskedasticity
  • Regime switching
  • Volatility modelling
  • Zero-drift GARCH

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