Testing the existence of moments for GARCH processes

It is generally admitted that many financial time series have heavy tailed marginal distributions. When time series models are fitted on such data, the non-existence of appropriate moments may invalidate standard statistical tools used for inference. Moreover, the existence of moments can be crucial for risk management, for instance when risk is measured through the expected shortfall. This paper considers testing the existence of moments in the framework of GARCH processes. While the second-order stationarity condition does not depend on the distribution of the innovation, higher-order moment conditions involve moments of the independent innovation process. We propose tests for the existence of high moments of the returns process which are based on the joint asymptotic distribution of the Quasi-Maximum Likelihood (QML) estimator of the volatility parameters and empirical moments of the residuals. A bootstrap procedure is proposed to improve the finite-sample performance of our test. To achieve efficiency gains we consider non Gaussian QML estimators founded on reparameterizations of the GARCH model, and we discuss optimality issues. Monte Carlo experiments and an empirical study illustrate the asymptotic results.(This abstract was borrowed from another version of this item.)