Persistence and Kurtosis in GARCH and Stochastic Volatility Models

Posted: 29 Feb 2008

See all articles by M. Angeles Carnero

M. Angeles Carnero

Universidad de Alicante - Department of Economic Analysis

Daniel Peña

Universidad Carlos III de Madrid

Esther Ruiz

Charles III University of Madrid - Department of Statistics and Econometrics

Date Written: 2004

Abstract

This article shows that the relationship between kurtosis, persistence of shocks to volatility, and first-order autocorrelation of squares is different in GARCH and ARSV models. This difference can explain why, when these models are fitted to the same series, the persistence estimated is usually higher in GARCH than in ARSV models, and, why gaussian ARSV models seem to be adequate, whereas GARCH models often require leptokurtic conditional distributions. We also show that introducing the asymmetric response of volatility to positive and negative returns does not change the conclusions. These results are illustrated with the analysis of daily financial returns.

Keywords: ARSV, EGARCH, leverage effect, QGARCH

Suggested Citation

Carnero, M. Angeles and Pena, Daniel and Ruiz, Esther, Persistence and Kurtosis in GARCH and Stochastic Volatility Models ( 2004). Journal of Financial Econometrics, Vol. 2, No. 2, pp. 319-342, 2004, Available at SSRN: https://ssrn.com/abstract=821723

M. Angeles Carnero

Universidad de Alicante - Department of Economic Analysis ( email )

03080 Alicante
Spain

Daniel Pena

Universidad Carlos III de Madrid ( email )

E-28903 Getafe (Madrid)
Spain

Esther Ruiz (Contact Author)

Charles III University of Madrid - Department of Statistics and Econometrics ( email )

c/ Madrid 126
Getafe (Madrid), 28903
Spain

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