The Student's t

Maria S. Heracleous and Aris Spanos

A chapter in Econometric Analysis of Financial and Economic Time Series, 2006, pp 289-319 from Emerald Group Publishing Limited

Abstract: This paper proposes the Student's t Dynamic Linear Regression (St-DLR) model as an alternative to the various extensions/modifications of the ARCH type volatility model. The St-DLR differs from the latter models of volatility because it can incorporate exogenous variables in the conditional variance in a natural way. Moreover, it also addresses the following issues: (i) apparent long memory of the conditional variance, (ii) distributional assumption of the error, (iii) existence of higher moments, and (iv) coefficient positivity restrictions. The model is illustrated using Dow Jones data and the three-month T-bill rate. The empirical results seem promising, as the contemporaneous variable appears to account for a large portion of the volatility.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(05)20011-7

DOI: 10.1016/S0731-9053(05)20011-7

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