Sample Kurtosis, GARCH-t and the Degrees of Freedom Issue

Maria S. Heracleous

No ECO2007/60, Economics Working Papers from European University Institute

Abstract: Econometric modeling based on the Student’s t distribution introduces an additional parameter — the degree of freedom. In this paper we use a simulation study to investigate the ability of (i) the GARCH-t model (Bollerslev, 1987) to estimate the true degree of freedom parameter and (ii) the sample kurtosis coefficient to accurately determine the implied degrees of freedom. Simulation results reveal that the GARCH-t model and the sample kurtosis coefficient provide biased and inconsistent estimates of the degree of freedom parameter. Moreover, by varying ó2, we find that only the constant term in the conditional variance equation is affected, while the other parameters remain unaffected.

Keywords: Student’s t distribution; Degree of freedom; Kurtosis coefficient; GARCH t model (search for similar items in EconPapers)
JEL-codes: C15 C16 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2007
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