A Heavy-Tailed Distribution for ARCH Residuals with Application to Volatility Prediction
AbstractThe quest for the `best' heavy-tailed distribution for ARCH/GARCH residuals appears to still be ongoing. In this connection, we propose a new distribution that arises in a natural way as an outcome of an implicit model. The challenging application of prediction of squared returns is also discussed; an optimal predictor is formulated, and the usefulness of the new distribution for prediction is demonstrated on three real datasets.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 5 (2004)
Issue (Month): 2 (November)
Heteroscedasticity; Kyrtosis; Maximum likelihood; Time series;
Find related papers by JEL classification:
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
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