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Modeling financial time series with the skew slash distribution

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  • Cristina G. de la Fuente

    ()

  • Pedro Galeano

    ()

  • Michael P. Wiper

    ()

Abstract

Financial returns often present moderate skewness and high kurtosis. As a consequence, it is natural to look for a model that is exible enough to capture these characteristics. The proposal is to undertake inference for a generalized autoregressive conditional heteroskedastic (GARCH) model, where the innovations are assumed to follow a skew slash distribution. Both classical and Bayesian inference are carried out. Simulations and a real data example illustrate the performance of the proposed methodology.

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File URL: http://e-archivo.uc3m.es/bitstream/10016/14545/1/ws121108.pdf
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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Estadística y Econometría in its series Statistics and Econometrics Working Papers with number ws121108.

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Date of creation: Jun 2012
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Handle: RePEc:cte:wsrepe:ws121108

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Keywords: Financial returns; GARCH model; Kurtosis; Skew slash distribution; Skewness;

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  1. 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.
  2. Cabral, Celso Rômulo Barbosa & Lachos, Víctor Hugo & Prates, Marcos O., 2012. "Multivariate mixture modeling using skew-normal independent distributions," Computational Statistics & Data Analysis, Elsevier, vol. 56(1), pages 126-142, January.
  3. Bai, Xuezheng & Russell, Jeffrey R. & Tiao, George C., 2003. "Kurtosis of GARCH and stochastic volatility models with non-normal innovations," Journal of Econometrics, Elsevier, vol. 114(2), pages 349-360, June.
  4. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  5. Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
  6. Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
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Cited by:
  1. Cristina García de la Fuente & Pedro Galeano & Michael P. Wiper, 2014. "Bayesian estimation of a Dynamic Conditional Correlation model with multivariate Skew-Slash innovations," Statistics and Econometrics Working Papers ws141711, Universidad Carlos III, Departamento de Estadística y Econometría.

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