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Regular Variation of Popular GARCH Processes Allowing for Distributional Asymmetry

Todd Prono ()

No 2017-095, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (US)

Abstract: Linear GARCH(1,1) and threshold GARCH(1,1) processes are established as regularly varying, meaning their heavy tails are Pareto like, under conditions that allow the innovations from the, respective, processes to be skewed. Skewness is considered a stylized fact for many financial returns assumed to follow GARCH-type processes. The result in this note aids in establishing the asymptotic properties of certain GARCH estimators proposed in the literature.

Keywords: GARCH; Pareto tail; Heavy tail; Regular variation; Threshold GARCH (search for similar items in EconPapers)
JEL-codes: C20 C22 C53 C58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
Date: 2017-09-22
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DOI: 10.17016/FEDS.2017.095

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