Is Stochastic Volatility More Flexible than Garch

Is stochastic volatility more flexible than garch

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Working Paper 01-08 Statistics and Econometrics Series 05 March 2001 Departamento de Estadística y Econometría Universidad Carlos III de Madrid Calle Madrid, 126 28903 Getafe (Spain) Fax (34) 91 624-98-49 IS STOCHASTIC VOLATILITY MORE FLEXIBLE THAN GARCH? M. Angeles Carnero, Daniel Peña and Esther Ruiz* Abstract This paper compares the ability of GARCH and ARSV models to represent adequately the main empirical properties usually observed in high frequency financial time series: high kurtosis, small first order autocorrelation of squared observations and slow decay towards zero of the autocorrelation coefficients of squared observations. We show that the ARSV(1) model is more flexible than the GARCH(1,1) model in the sense that it is able to generate series with higher kurtosis and smaller first order autocorrelation of squares for a wider variety of parameter specifications. Our results may help to clarify some puzzles raised in the empirical analysis of real financial time series. Keywords: ARSV; GARCH; high persistence; excess kurtosi...
View Full Document

Ask a homework question - tutors are online