Tail Behavior and Dependence Structure in the APARCH Model

Javed Farrukh () and Podgórski Krzysztof ()
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Javed Farrukh: Örebro School of Business, Örebro University, Örebro, Sweden
Podgórski Krzysztof: Örebro School of Business, Örebro University, Örebro, Sweden

Journal of Time Series Econometrics, 2017, vol. 9, issue 2, 48

Abstract: The APARCH model attempts to capture asymmetric responses of volatility to positive and negative ‘news shocks’ – the phenomenon known as the leverage effect. Despite its potential, the model’s properties have not yet been fully investigated. While the capacity to account for the leverage is clear from the defining structure, little is known how the effect is quantified in terms of the model’s parameters. The same applies to the quantification of heavy-tailedness and dependence. To fill this void, we study the model in further detail. We study conditions of its existence in different metrics and obtain explicit characteristics: skewness, kurtosis, correlations and leverage. Utilizing these results, we analyze the roles of the parameters and discuss statistical inference. We also propose an extension of the model. Through theoretical results we demonstrate that the model can produce heavy-tailed data. We illustrate these properties using S&P500 data and country indices for dominant European economies.

Keywords: time series models; heavy tails; leverage effect; estimation (search for similar items in EconPapers)
JEL-codes: C13 C32 C58 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/jtse-2016-0002

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