Advanced Search
MyIDEAS: Login to save this paper or follow this series

Normal Mixture GARCH (1,1): Application to Exchange Rate Modelling

Contents:

Author Info

  • Carol Alexandra

    ()
    (ICMA Centre, University of Reading)

  • Emese Lazar

    ()
    (ICMA Centre, University of Reading)

Registered author(s):

    Abstract

    Some recent specifications for GARCH error processes explicitly assume a conditional variance that is generated by a mixture of normal components, albeit with some parameter restrictions. This paper analyses the general normal mixture GARCH(1,1) model which can capture time-variation in both conditional skewness and kurtosis. A main focus of the paper is to provide conclusive evidence that, for modelling exchange rates, generalized two component normal mixture GARCH(1,1) models perform better than those with three or more components, and better than symmetric and skewed Student’s t-GARCH models. In addition to the extensive empirical results based on simulation and on historical data on three US dollar foreign exchange rates (British pound, Euro and Japanese yen) we derive: expressions for the conditional and unconditional moments of all models; parameter conditions to ensure that the second and fourth conditional and unconditional moments are positive and finite; and analytic derivatives for the maximum likelihood estimation of the model parameters and standard errors of the estimates.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.icmacentre.ac.uk/pdf/discussion/DP2004-06.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2004-05.

    as in new window
    Length: 83 pages
    Date of creation: Mar 2004
    Date of revision:
    Handle: RePEc:rdg:icmadp:icma-dp2004-05

    Contact details of provider:
    Postal: PO Box 218, Whiteknights, Reading, Berks, RG6 6AA
    Phone: +44 (0) 118 378 8226
    Fax: +44 (0) 118 975 0236
    Web page: http://www.henley.reading.ac.uk/
    More information through EDIRC

    Related research

    Keywords: Volatility regimes; conditional exess kurtosis; normal mixture; heavy trails; exchange rates; conditional hetroscedasticity; GARCH models.;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:rdg:icmadp:icma-dp2004-05. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ed Quick).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.