2. Include a leverage effect in the variance equation. Estimate

2t C1 D !C .Rt ????t/

2 C2t

; with Rt D tzt; and zt  N.0;1/

Set starting values to D 0:07; D 0:85; ! D 0:000005; and  D 0:5. What is the sign of the leverage parameter? Explain how the leverage effect is captured in this model. Plot the autocorrelations for lag 1 through 100 for R2t as well as R2t =2t , and compare the two. Compare your results with Figure 4.5. Use an LR test to assess the significance of the leverage effect parameter .