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GARCH processes with skewed and leptokurtic innovations: Revisiting the Johnson Su case

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  • Simonato, Jean-Guy
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    Abstract

    We revisit the specification of GARCH processes with Johnson Su innovations examined in Choi and Nam [2008. Journal of Empirical Finance 15, 41–63]. This model, allowing for skewed and leptokurtic innovations, has many advantages over well known alternatives. We examine a simpler version of their specification which does not require the introduction of a location parameter. The likelihood function is derived and the model is estimated with the daily returns of six international stock indexes. The results show that the model provides an accurate fit using the past ten years of index returns which include the recent turbulent periods of the sub-prime and European sovereign debt crisis.

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    Bibliographic Info

    Article provided by Elsevier in its journal Finance Research Letters.

    Volume (Year): 9 (2012)
    Issue (Month): 4 ()
    Pages: 213-219

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    Handle: RePEc:eee:finlet:v:9:y:2012:i:4:p:213-219

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    Web page: http://www.elsevier.com/locate/frl

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    Keywords: GARCH; Johnson distributions; Skewness; Kurtosis;

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    1. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December.
    2. Choi, Pilsun & Nam, Kiseok, 2008. "Asymmetric and leptokurtic distribution for heteroscedastic asset returns: The SU-normal distribution," Journal of Empirical Finance, Elsevier, vol. 15(1), pages 41-63, January.
    3. Hansen, Bruce E, 1994. "Autoregressive Conditional Density Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 705-30, August.
    4. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
    5. Hsieh, David A, 1989. "Modeling Heteroscedasticity in Daily Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(3), pages 307-17, July.
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