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Autoregressive Conditional Kurtosis

Brooks, Chris, Burke, Simon P., Heravi, Saeed ORCID: and Persand, Gita 2005. Autoregressive Conditional Kurtosis. Journal of Financial Econometrics 3 (3) , pp. 399-421. 10.1093/jjfinec/nbi018

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This article proposes a new model for autoregressive conditional heteroscedasticity and kurtosis. Via a time-varying degrees of freedom parameter, the conditional variance and conditional kurtosis are permitted to evolve separately. The model uses only the standard Student’s t-density and consequently can be estimated simply using maximum likelihood. The method is applied to a set of four daily financial asset return series comprising U.S. and U.K. stocks and bonds, and significant evidence in favor of the presence of autoregressive conditional kurtosis is observed. Various extensions to the basic model are proposed, and we show that the response of kurtosis to good and bad news is not significantly asymmetric.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Uncontrolled Keywords: conditional kurtosis; fat tails; fourth moment; GARCH; Student’s t-distribution
Publisher: Oxford University Press
ISSN: 1479-8409
Last Modified: 21 Oct 2022 10:00

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