Ludger Hentschel

Overview

Ludger Hentschel is a finance professor at the Simon School of Business, University of Rochester. He is best known for the 1995 Journal of Financial Economics paper that derives a four-parameter Box-Cox GARCH family nesting eight standard volatility specifications — EGARCH, TGARCH, AGARCH, GARCH, NA-GARCH, GJR-GARCH, NARCH, and A-PARCH — under a single variance equation.

Key Contributions

• Hentschel (1995) GARCH family. The unified equation $(\sigma_t^\lambda-1)/\lambda = \omega + \alpha \sigma_{t-1}^{\lambda-\nu} f^\nu(\varepsilon_t) + \beta(\sigma_{t-1}^\lambda-1)/\lambda$ with news impact function $f(\varepsilon_t) = |\varepsilon_t-b|-c(\varepsilon_t-b)$ nests all major symmetric and asymmetric GARCH models as parameter restrictions on $(\lambda, \nu, b, c)$.
• Shift/rotation distinction. Identified shift ($b$, small-shock asymmetry) and rotation ($c$, large-shock asymmetry) as two empirically distinct dimensions of the news impact curve that prior models conflated.
• Empirical finding. On 17,486 CRSP daily excess returns (1926–1990), all standard models are rejected; asymmetry is primarily a small-shock phenomenon driven by the shift parameter.

Related

• GARCH and BEKK-GARCH
• Hentschel (1995)