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Autoregressive conditional kurtosis

Autoregressive conditional kurtosis
Autoregressive conditional kurtosis
This article proposes a new model for autoregressive conditional heteroscedasticity and kurtosis. Via a time-varying degrees of freedom parameter, the conditional variance and conditional kurtosis are permitted to evolve separately. The model uses only the standard Student’s t-density and consequently can be estimated simply using maximum likelihood. The method is applied to a set of four daily financial asset return series comprising U.S. and U.K. stocks and bonds, and significant evidence in favor of the presence of autoregressive conditional kurtosis is observed. Various extensions to the basic model are proposed, and we show that the response of kurtosis to good and bad news is not significantly asymmetric.
conditional kurtosis, fat tails, fourth moment, GARCH, Student’s t-distribution
1479-8409
399-421
Brooks, Chris
2be5f663-66b8-43d2-903c-6f800e6e2385
Burke, Simon P.
8bb7116d-1870-484b-a619-a1f47bc16f24
Heravi, Saeed
575e43a1-1ce5-4493-abeb-c33f5ea743dd
Persand, Gita
d60c4b3f-fd3b-4b0a-892f-3c4eb992f15d
Brooks, Chris
2be5f663-66b8-43d2-903c-6f800e6e2385
Burke, Simon P.
8bb7116d-1870-484b-a619-a1f47bc16f24
Heravi, Saeed
575e43a1-1ce5-4493-abeb-c33f5ea743dd
Persand, Gita
d60c4b3f-fd3b-4b0a-892f-3c4eb992f15d

Brooks, Chris, Burke, Simon P., Heravi, Saeed and Persand, Gita (2005) Autoregressive conditional kurtosis. Journal of Financial Econometrics, 3 (3), 399-421. (doi:10.1093/jjfinec/nbi018).

Record type: Article

Abstract

This article proposes a new model for autoregressive conditional heteroscedasticity and kurtosis. Via a time-varying degrees of freedom parameter, the conditional variance and conditional kurtosis are permitted to evolve separately. The model uses only the standard Student’s t-density and consequently can be estimated simply using maximum likelihood. The method is applied to a set of four daily financial asset return series comprising U.S. and U.K. stocks and bonds, and significant evidence in favor of the presence of autoregressive conditional kurtosis is observed. Various extensions to the basic model are proposed, and we show that the response of kurtosis to good and bad news is not significantly asymmetric.

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More information

Published date: 2005
Keywords: conditional kurtosis, fat tails, fourth moment, GARCH, Student’s t-distribution

Identifiers

Local EPrints ID: 36774
URI: https://eprints.soton.ac.uk/id/eprint/36774
ISSN: 1479-8409
PURE UUID: a7b97aae-c65f-482e-a95f-80a5401ed3eb

Catalogue record

Date deposited: 22 May 2006
Last modified: 17 Jul 2017 15:43

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