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Stable-GARCH Models for Financial Returns: Fast Estimation and Tests for Stability


Paolella, Marc (2016). Stable-GARCH Models for Financial Returns: Fast Estimation and Tests for Stability. Econometrics, 4(2):25.

Abstract

A fast method for estimating the parameters of a stable-APARCH not requiring likelihood or iteration is proposed. Several powerful tests for the (asymmetric) stable Paretian distribution with tail index 1<α<2 are used for assessing the appropriateness of the stable assumption as the innovations process in stable-GARCH-type models for daily stock returns. Overall, there is strong evidence against the stable as the correct innovations assumption for all stocks and time periods, though for many stocks and windows of data, the stable hypothesis is not rejected.

Abstract

A fast method for estimating the parameters of a stable-APARCH not requiring likelihood or iteration is proposed. Several powerful tests for the (asymmetric) stable Paretian distribution with tail index 1<α<2 are used for assessing the appropriateness of the stable assumption as the innovations process in stable-GARCH-type models for daily stock returns. Overall, there is strong evidence against the stable as the correct innovations assumption for all stocks and time periods, though for many stocks and windows of data, the stable hypothesis is not rejected.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:5 May 2016
Deposited On:01 Mar 2018 15:35
Last Modified:13 Apr 2018 11:37
Publisher:MDPI Publishing
ISSN:2225-1146
OA Status:Gold
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.3390/econometrics4020025
Other Identification Number:merlin-id:15389

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