Two EGARCH models and one fat tail
AbstractWe compare two EGARCH models which belong to a new class of models in which the dynamics are driven by the score of the conditional distribution of the observations. Models of this kind are called dynamic conditional score (DCS) models and their form facilitates the development of a comprehensive and relatively straightforward theory for the asymptotic distribution of the maximum likelihood estimator. The EGB2 distribution is light-tailed, but with higher kurtosis than the normal. Hence it is complementary to the fat-tailed t. The EGB2-EGARCH model gives a good fit to many exchange rate return series, prompting an investigation into the misleading conclusions liable to be drawn from tail index estimates.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1326.
Date of creation: 29 Jul 2013
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Exchange rates; heavy tails; Hill's estimator; score; robustness; Student's t; tail index;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-ECM-2013-08-05 (Econometrics)
- NEP-ETS-2013-08-05 (Econometric Time Series)
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