Gaussian Tests of "Extremal White Noise" for Dependent, Heterogeneous, Heavy Tailed Time Series with an Application
We develop asymptotically chi-squared tests of tail specific extremal serial dependence for possibly heavy-tailed time series, including infinite variance and infinite mean processes. Our test statistics have a chi-squared limit distribution under the null of "extremal white-noise" for processes near-epoch-dependent on a mixing process; and obtain a power of one for extremal dependent processes under general conditions. We restrict the NED property to hold only in the extreme support of the distribution, and characterize a broad array of linear and GARCH processes with geometric or hypoberbolic memory that are extremal NED. We apply one-tailed, two-tailed, and difference in tails tests to stock market and exchange rate returns data, and find low levels of significant, persistent, symmetric extremal dependence in the Yen and British Pound, and except for the Shanghai Stock Exchange we find no evidence of extremal dependence in any absolute returns series. A limited study of bivariate volatility spillover in exchange rates reveals extremes in the daily returns of the Yen symmetrically spillover briefly into the Euro after a four day delay, and positive extreme returns in the Euro immediately, and persistently, spillover into the Yen. //
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.:
- Bekaert, Geert & Harvey, Campbell R., 1997.
"Emerging equity market volatility,"
Journal of Financial Economics,
Elsevier, vol. 43(1), pages 29-77, January.
- François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
- Hentschel, Ludger & Campbell, John, 1992.
"No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns,"
3220232, Harvard University Department of Economics.
- Campbell, John Y. & Hentschel, Ludger, 1992. "No news is good news *1: An asymmetric model of changing volatility in stock returns," Journal of Financial Economics, Elsevier, vol. 31(3), pages 281-318, June.
- John Y. Campbell & Ludger Hentschel, 1991. "No News is Good News: An Asymmetric Model of Changing Volatility in Stock Returns," NBER Working Papers 3742, National Bureau of Economic Research, Inc.
- repec:att:wimass:9520 is not listed on IDEAS
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- Hong, Yongmiao, 2001. "A test for volatility spillover with application to exchange rates," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 183-224, July.
- Peng, L., 1999. "Estimation of the coefficient of tail dependence in bivariate extremes," Statistics & Probability Letters, Elsevier, vol. 43(4), pages 399-409, July.
- Adrian R. Pagan & G. William Schwert, 1989.
"Alternative Models For Conditional Stock Volatility,"
NBER Working Papers
2955, National Bureau of Economic Research, Inc.
- Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290.
- Pagan, A.R. & Schwert, G.W., 1989. "Alternative Models For Conditional Stock Volatility," Papers 89-02, Rochester, Business - General.
- Poon, Ser-Huang & Rockinger, Michael & Tawn, Jonathan, 2001.
"New Extreme-Value Dependence Measures and Finance Applications,"
CEPR Discussion Papers
2762, C.E.P.R. Discussion Papers.
- POON, Ser-Huang & ROCKINGER, Michael & TAWN, Jonathan, 2001. "New Extreme-Value Dependance Measures and Finance Applications," Les Cahiers de Recherche 719, HEC Paris.
- Ser-Huang Poon & Michael Rockinger & J. Tawn, 2001. "New Extreme-Value Dependance Measures and Finance Applications," Working Papers hal-00597018, HAL.
- repec:att:wimass:9204 is not listed on IDEAS
- Runde, Ralf, 1997. "The asymptotic null distribution of the Box-Pierce Q-statistic for random variables with infinite variance an application to German stock returns," Journal of Econometrics, Elsevier, vol. 78(2), pages 205-216, June.
- Kokoszka, Piotr S. & Taqqu, Murad S., 1996. "Infinite variance stable moving averages with long memory," Journal of Econometrics, Elsevier, vol. 73(1), pages 79-99, July.
- 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 273-85, July-Sept.
- Starica, Catalin, 1999. "Multivariate extremes for models with constant conditional correlations," Journal of Empirical Finance, Elsevier, vol. 6(5), pages 515-553, December.
- Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
- Carmela Quintos, 2004. "Extremal Correlation for GARCH Data," Econometric Society 2004 North American Summer Meetings 87, Econometric Society.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpem:0411014. 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: (EconWPA)
If references are entirely missing, you can add them using this form.