Indirect Estimation of α-Stable Garch Models
It is a well-known fact that financial returns exhibit conditional heteroscedasticity and fat tails. While the GARCH-type models are very popular in depicting the conditional heteroscedasticity, the α-stable distribution is a natural candidate for the conditional distribution of financial returns. The α-stable distribution is a generalization of the normal distribution and is described by four parameters, two of which deal with tail-thickness and asymmetry. However, practical implementation of α-stable distribution in finance applications has been limited by its estimation difficulties. In this paper, we propose an indirect approach of estimating GARCH models with α-stable innovations by using as auxiliary models GARCH-type models with Student's t distributed innovations. We provide comprehensive empirical evidence on the performance of the method within a series of Monte Carlo simulation studies and an empirical application to financial returns.
|Date of creation:||23 Nov 2012|
|Contact details of provider:|| Postal: D-78457 Konstanz|
Web page: https://www.wiwi.uni-konstanz.de/en
More information through EDIRC
|Order Information:||Web: https://www.wiwi.uni-konstanz.de/en|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Liu, Shi-Miin & Brorsen, B Wade, 1995. "Maximum Likelihood Estimation of a Garch-Stable Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(3), pages 273-285, July-Sept.
- Gallant, A. Ronald & Tauchen, George, 1996.
"Which Moments to Match?,"
Cambridge University Press, vol. 12(04), pages 657-681, October.
- Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
- Ghose, Devajyoti & Kroner, Kenneth F., 1995. "The relationship between GARCH and symmetric stable processes: Finding the source of fat tails in financial data," Journal of Empirical Finance, Elsevier, vol. 2(3), pages 225-251, September.
- Rene Garcia & Eric Renault & David Veredas, 2011. "Estimation of stable distributions with indirect inference," ULB Institutional Repository 2013/136186, ULB -- Universite Libre de Bruxelles.
- Seung‐Ryong Yang & B. Wade Brorsen, 1993. "Nonlinear dynamics of daily futures prices: Conditional heteroskedasticity or chaos?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 13(2), pages 175-191, 04.
- de Vries, Casper G., 1991. "On the relation between GARCH and stable processes," Journal of Econometrics, Elsevier, vol. 48(3), pages 313-324, June.
- de Vries, C.G., 1990. "On the relation between GARCH and stable processes," Discussion Paper 1990-34, Tilburg University, Center for Economic Research.
- Mittnik, Stefan & Paolella, Marc S. & Rachev, Svetlozar T., 2000. "Diagnosing and treating the fat tails in financial returns data," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 389-416, November.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages 85-118, Suppl. De.
- Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers 92.279, Toulouse - GREMAQ.
- Lombardi, Marco J. & Calzolari, Giorgio, 2009. "Indirect estimation of [alpha]-stable stochastic volatility models," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2298-2308, April.
- Marco Lombardi & Giorgio Calzolari, 2006. "Indirect estimation of alpha-stable stochastic volatility models," Econometrics Working Papers Archive wp2006_07, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
- Marco J. Lombardi & Giorgio Calzolari, 2008. "Indirect Estimation of α-Stable Distributions and Processes," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 193-208, 03.
- Liu, Shi-Miin & Brorsen, B Wade, 1995. "GARCH-Stable as a Model of Futures Price Movements," Review of Quantitative Finance and Accounting, Springer, vol. 5(2), pages 155-167, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:knz:dpteco:1231. 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: (Office Ursprung)
If references are entirely missing, you can add them using this form.