Advanced Search
MyIDEAS: Login to save this article or follow this journal

Estimation of Time Varying Skewness and Kurtosis with an Application to Value at Risk

Contents:

Author Info

  • Dark Jonathan Graeme

    ()
    (University of Melbourne)

Registered author(s):

    Abstract

    This paper generalizes the Hyperbolic Asymmetric Power ARCH (HYAPARCH) model to allow for time varying skewness and kurtosis in the conditional distribution. This is done by modeling the conditional skewness and degrees of freedom of the skewed Student's t distribution of Lambert and Laurent (2001) as a function of the conditioning information. The proposed specification nests a large number of models in the literature and represents the first attempt to jointly model long memory in volatility and time variation in the third and fourth moments. The finite sample properties of MLE for this class of model are examined. The results indicate that the ARCH class of processes with time varying skewness can be reliably estimated with realistic sample sizes. Simulations and empirical evidence are unable to replicate the findings of Harvey and Siddique (1999), that accounting for time varying skewness reduces the persistence and asymmetry properties of the conditional variance. Simulations also suggest that time varying kurtosis estimation must be viewed with caution, because it can be difficult to identify in the presence of ARCH effects. Application of the HYAPARCH model with time varying skewness and degrees of freedom illustrates the usefulness of the proposed approach. Out of sample forecasts of the value at risk (VaR) however, generally support parsimonious models that assume conditional normality. When forecasting VaR, skewness and leptokurtosis in the unconditional return distribution is generally better captured via an asymmetric conditional variance model with Gaussian innovations.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.degruyter.com/view/j/snde.2010.14.2/snde.2010.14.2.1720/snde.2010.14.2.1720.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

    Volume (Year): 14 (2010)
    Issue (Month): 2 (March)
    Pages: 1-50

    as in new window
    Handle: RePEc:bpj:sndecm:v:14:y:2010:i:2:n:3

    Contact details of provider:
    Web page: http://www.degruyter.com

    Order Information:
    Web: http://www.degruyter.com/view/j/snde

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Matteo Grigoletto & Francesco Lisi, 2011. "Practical implications of higher moments in risk management," Statistical Methods and Applications, Springer, vol. 20(4), pages 487-506, November.
    2. M. A. Virasoro, 2011. "Non-Gaussianity of the Intraday Returns Distribution: its evolution in time," Papers 1112.0770, arXiv.org, revised Dec 2011.
    3. Conrad, Christian, 2010. "Non-negativity conditions for the hyperbolic GARCH model," Journal of Econometrics, Elsevier, vol. 157(2), pages 441-457, August.
    4. Deschamps, Philippe J., 2012. "Bayesian estimation of generalized hyperbolic skewed student GARCH models," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3035-3054.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:bpj:sndecm:v:14:y:2010:i:2:n:3. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.