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Autorregresive conditional volatility, skewness and kurtosis

Author

Listed:
  • León, Angel
  • Rubio Irigoyen, Gonzalo
  • Serna, Gregorio

Abstract

This paper proposes a GARCH-type model allowing for time-varying volatility, skewness and kurtosis. The model is estimated assuming a Gram-Charlier series expansion of the normal density function for the error term, which is easier to estimate than the non-central t distribution proposed by Harvey and Siddique (1999). Moreover, this approach accounts for time-varying skewness and kurtosis while the approach by Harvey and Siddique (1999) only accounts for nonnormal skewness. We apply this method to daily returns of a variety of stock indices and exchange rates. Our results indicate a significant presence of conditional skewness and kurtosis. It is also found that specifications allowing for time-varying skewness and kurtosis outperform specifications with constant third and fourth moments.

Suggested Citation

  • León, Angel & Rubio Irigoyen, Gonzalo & Serna, Gregorio, 2002. "Autorregresive conditional volatility, skewness and kurtosis," DFAEII Working Papers 1988-088X, University of the Basque Country - Department of Foundations of Economic Analysis II.
    • Handle: RePEc:ehu:dfaeii:6759
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