Volatility Feedback and Risk Premium in GARCH Models with Generalized Hyperbolic Distributions

19 Pages Posted: 27 Jan 2010

See all articles by Minxian Yang

Minxian Yang

UNSW Australia Business School, School of Economics

Date Written: January 27, 2010

Abstract

The mixture structure of the generalized hyperbolic distribution of Barndorff-Nielsen (1997) is explored to quantify the contemporaneous correlation between return and volatility and to identify the effects of volatility feedback and risk premium within GARCH models. The statistical analysis of FTSE 100 and S&P 500 index excess return series supports both volatility feedback and risk premium theories.

Keywords: Contemporaneous correlation, ARCH-M decomposition, mixture distributions, NIG distribution, GH skewed t distribution, maximum likelihood

JEL Classification: C22, C51

Suggested Citation

Yang, Minxian, Volatility Feedback and Risk Premium in GARCH Models with Generalized Hyperbolic Distributions (January 27, 2010). Available at SSRN: https://ssrn.com/abstract=1498845 or http://dx.doi.org/10.2139/ssrn.1498845

Minxian Yang (Contact Author)

UNSW Australia Business School, School of Economics ( email )

School of Economics
The University of New South Wales
Sydney, NSW NSW 2052
Australia
93853353 (Phone)

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