This paper proposes a mixed GARCH-Jump model that is tailored to the specific circumstances arising in emerging equity markets. Our model accommodates lagged currency returns as a local information variable in the autoregressive jump intensity function, incorporates jumps in the returns and volatility, and allows volatility to respond asymmetrically to both normal innovations and jump shocks. The model captures the distinguishing features of the Asian index returns and significantly improves the fit for those markets that were affected by the 1997 Asian crisis. Our proposed model yields higher levels of conditional kurtosis and superior forecasts of the expected arrival rate of jumps.
Daal, Elton; Naka, Atsuyuki; and Yu, Jung-Suk, "Volatility clustering, leverage effects, and jumps dynamics in emerging asian equity markets" (2004). Department of Economics and Finance Working Papers, 1991-2006. Paper 25.