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Stable-GARCH Models for Financial Returns: Fast Estimation and Tests for Stability

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  • Marc S. Paolella

    () (Department of Banking and Finance, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland
    Swiss Finance Institute, Walchestrasse 9 CH-8006 Zurich, Switzerland)

Abstract

A fast method for estimating the parameters of a stable-APARCH not requiring likelihood or iteration is proposed. Several powerful tests for the (asymmetric) stable Paretian distribution with tail index 1 < α < 2 are used for assessing the appropriateness of the stable assumption as the innovations process in stable-GARCH-type models for daily stock returns. Overall, there is strong evidence against the stable as the correct innovations assumption for all stocks and time periods, though for many stocks and windows of data, the stable hypothesis is not rejected.

Suggested Citation

  • Marc S. Paolella, 2016. "Stable-GARCH Models for Financial Returns: Fast Estimation and Tests for Stability," Econometrics, MDPI, Open Access Journal, vol. 4(2), pages 1-28, May.
  • Handle: RePEc:gam:jecnmx:v:4:y:2016:i:2:p:25-:d:69492
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    1. repec:eee:ecosta:v:3:y:2017:i:c:p:91-111 is not listed on IDEAS
    2. Paolella, Marc S., 2017. "Asymmetric stable Paretian distribution testing," Econometrics and Statistics, Elsevier, vol. 1(C), pages 19-39.

    More about this item

    Keywords

    APARCH; asymmetric stable Paretian; Hill-type tail estimators; sum-stability;

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C - Mathematical and Quantitative Methods
    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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