Consider the Following Conditional Variance Equation for a GJR Model $\alpha$

question 2

Multiple Choice

Consider the following conditional variance equation for a GJR model. h_t = $\alpha$ ₀ + $\alpha$ ₁+ $\beta$ h_t-1+ $\gamma$ u_t-1²I_t-1 where I_t-1 = 1 if u_t-1 < 0 = 0 otherwise
For there to be evidence of a leverage effect, which one of the following conditions must hold?

• A) \(\alpha\)₀ positive and statistically significant
• B) \(\gamma\) positive and statistically significant
• C) \(\gamma\) statistically significantly greater than \(\alpha\)₀
• D) \(\alpha\)₁+\(\beta\) statistically significantly less than \(\gamma\)

---

Definitions:

Passive Correlation

A statistical relationship between two variables where changes in one variable occur alongside but are not directly caused by changes in the other.

Personality

The combination of characteristics or qualities that form an individual's distinctive character, influencing thoughts, feelings, and behaviors.

Intelligence

The ability to learn, understand, and apply knowledge, to reason and solve problems, and to adapt to new situations.

Weight

A measure of the mass of an object or individual, often used in a health context to discuss body mass and its implications for well-being.