Autoregressive conditional volatility, skewness and kurtosis

• Autores: Gonzalo Rubio Irigoyen, Gregorio Serna, Angel León Valle
• Localización: Working papers = Documentos de trabajo: Serie AD, Nº. 13, 2004, 25 págs.
• Idioma: inglés
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• Resumen

  • 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.