Volatility Modeling with Leverage Effect under Laplace Errors
Jiang Zhengjun () and
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Jiang Zhengjun: Bryant College, Beijing Institute of Technology, Zhuhai, No. 6, Jinfeng Road, Tangjiawan, Zhuhai, Guangdong519088, China.
Journal of Time Series Econometrics, 2018, vol. 10, issue 1, 29
This paper discusses four GARCH-type models (A-GARCH, NA-GARCH, GJR-GARCH, and E-GARCH) in representing volatility of financial returns with leverage effect. In these models, errors are assumed to follow a Laplace distribution in order to deal with the typical leptokurtic feature of financial returns. The properties of these models are analyzed theoretically in terms of unconditional variance, kurtosis, autocorrelation function and news impact, and are further examined in the applications to real financial time series. Comparison is made with other choices of error distributions such as normal, Student-5, and Student-7 distributions, respectively. We also conduct residual analyses to justify the choice of error distributions and find that Laplace-E-GARCH model still performs very well. Our main purpose is to study and compare the proposed models’ relative adequacies and underlying limitations.
Keywords: GARCH-type models; volatility; financial returns; leverage effect; Laplace distribution (search for similar items in EconPapers)
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