A heavy-tailed distribution for ARCH residuals with application to volatility prediction

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A heavy-tailed distribution for ARCH residuals with application to volatility prediction

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Dimitris Politis (University of California, San Diego)

Abstract

The 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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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 2004-01.

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Date of creation: 29 Sep 2004
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Handle: RePEc:cdl:ucsdec:2004-01

Note: oai:cdlib1.org:ucsdecon-1018
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This paper has been announced in the following NEP Reports:

NEP-ALL-2004-10-21 (All new papers)
NEP-ECM-2004-10-21 (Econometrics)
NEP-ETS-2004-10-21 (Econometric Time Series)
NEP-FIN-2004-10-21 (Finance)
NEP-RMG-2004-10-21 (Risk Management)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59. [Downloadable!] (restricted)

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Dimitris Politis & Dimitrios Thomakos, 2007. "NoVaS Transformations: Flexible Inference for Volatility Forecasting," Working Papers 0005, University of Peloponnese, Department of Economics. [Downloadable!]
Other versions:
- Dimitrios D. Thomakos & Dimitris N. Politis, 2007. "NoVaS Transformations: Flexible Inference for Volatility Forecasting," Working Paper Series 44-07, Rimini Centre for Economic Analysis, revised Jul 2007. [Downloadable!]

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