Conditional Volatility, Skewness and Kurtosis: Existence and Persistence

49 Pages Posted: 17 Apr 2001

See all articles by Michael Rockinger

Michael Rockinger

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute; Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: July 2000

Abstract

Recent portfolio choice, asset pricing, and option valuation models highlight the importance of skewness and kurtosis. Since skewness and kurtosis are related to extreme variations, they are also important for Value-at-Risk measurements. Our framework builds on a GARCH model with a conditional generalized-t distribution for residuals. We compute the skewness and kurtosis for this model and compare the range of these moments with the maximal theoretical moments. Our model, thus allows for time-varying conditional skewness and kurtosis. We implement the model as a constrained optimization with possibly several thousand restrictions on the dynamics. A sequential quadratic programming algorithm successfully estimates all the models, on a PC, within at most 50 seconds. Estimators, obtained with logistically-constrained dynamics, have different properties. We apply this model to daily and weekly foreign exchange returns, stock returns, and interest-rate changes. This finding is consistent with findings from extreme value theory. Kurtosis exists on fewer dates and for fewer series. There is little evidence, at the weekly frequency, of time-variability of conditional higher moments. Transition matrices document that agitated stares come as a surprise and that there is a certain persistence in moments beyond volatility. For exchange-rate and stock-market data, cross-sectionally and at daily frequency, we also document co-variability of moments beyond volatility.

Keywords: Garch, stock indices, exchange rates, interest rates, SNOPT, VaR

JEL Classification: C22, C51, G12

Suggested Citation

Rockinger, Georg Michael and Jondeau, Eric, Conditional Volatility, Skewness and Kurtosis: Existence and Persistence (July 2000). Available at SSRN: https://ssrn.com/abstract=260910 or http://dx.doi.org/10.2139/ssrn.260910

Georg Michael Rockinger (Contact Author)

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 728 3348 (Phone)
+41+21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/mrockinger

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://people.unil.ch/ericjondeau/

Swiss Finance Institute ( email )

40, Boulevard du Pont-d'Arve
40, Bd du Pont-d'Arve
1211 Geneva 4, CH-6900
Switzerland
+41 21 692 33 49 (Phone)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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