Regular Variation of Popular GARCH Processes Allowing for Distributional Asymmetry

11 Pages Posted: 26 Sep 2017

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-09-22

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

JEL Classification: C20, C22, C53, C58

Suggested Citation

Prono, Todd, Regular Variation of Popular GARCH Processes Allowing for Distributional Asymmetry (2017-09-22). FEDS Working Paper No. 2017-095. Available at SSRN: https://ssrn.com/abstract=3042509 or http://dx.doi.org/10.17016/FEDS.2017.095

Todd Prono (Contact Author)

Federal Reserve Board ( email )

20th and Constitution Ave NW
Washington, DC 20551
United States

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