Fat Tails and Asymmetry in Financial Volatility Models

Peter Verhoeven and Michael McAleer
Additional contact information
Peter Verhoeven: School of Economics and Finance, Curtin University of Technology

No CIRJE-F-211, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Although the GARCH model has been quite successful in capturing important empirical aspects of financial data, particularly for the symmetric effects of volatility, it has had far less success in capturing the effects of extreme observations, outliers and skewness in returns. This paper examines the GARCH model under various non-normal error distributions in order to evaluate skewness and leptokurtosis. The empirical results show that GARCH models estimated using asymmetric leptokurtic distributions are superior to their counterparts estimated under normality, in terms of: (i) capturing skewness and leptokurtosis; (ii) the maximized log-likelihood values; and (iii) isolating the ARCH and GARCH parameter estimates from the adverse effects of outliers. Overall, the flexible asymmetric Student-t distribution performs best in terms of capturing the non-normal aspects of the data.

Pages: 18 pages
Date: 2003-03
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fin, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.cirje.e.u-tokyo.ac.jp/research/dp/2003/2003cf211.pdf (application/pdf)

Related works:
Journal Article: Fat tails and asymmetry in financial volatility models (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2003cf211

Access Statistics for this paper

More papers in CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by CIRJE administrative office ().