Autorregresive conditional volatility, skewness and kurtosis

This paper proposes a GARCH-type model allowing for time-varying volatility, skewness and kurtosis. The model is estimated assuming a Gram-Charlier series expansion of the normal density function for the error term, which is easier to estimate than the non-central t distribution proposed by Harvey and Siddique (1999). Moreover, this approach accounts for time-varying skewness and kurtosis while the approach by Harvey and Siddique (1999) only accounts for nonnormal skewness. We apply this method to daily returns of a variety of stock indices and exchange rates. Our results indicate a significant presence of conditional skewness and kurtosis. It is also found that specifications allowing for time-varying skewness and kurtosis outperform specifications with constant third and fourth moments.

Going Multinational under Exchange Rate Uncertainty

Published as an article in: Journal of International Money and Finance, 2010, vol. 29, issue 6, pages 1171-1191.