TY - JOUR
T1 - Diagnosing and treating the fat tails in financial returns data
AU - Mittnik, Stefan
AU - Paolella, Marc S.
AU - Rachev, Svetlozar T.
PY - 2000/11
Y1 - 2000/11
N2 - We address an open and important question regarding the nature of the fat tails found in financial-return data, which has been raised by Ghose and Kroner [Journal of Empirical Finance, 2 (1995) 225]. These authors find that two classes of models used for modeling financial returns, namely the independent and identically distributed (iid) stable Paretian and the GARCH assumption, have several features in common, with the latter being preferred. We advocate models that combine the two allegedly disjoint paradigms, i.e., GARCH processes driven by stable Paretian innovations, and investigate some of their theoretical and small-sample properties. Finally, we demonstrate the plausibility of the new models for several exchange-rate series involved in the Asian crisis.
AB - We address an open and important question regarding the nature of the fat tails found in financial-return data, which has been raised by Ghose and Kroner [Journal of Empirical Finance, 2 (1995) 225]. These authors find that two classes of models used for modeling financial returns, namely the independent and identically distributed (iid) stable Paretian and the GARCH assumption, have several features in common, with the latter being preferred. We advocate models that combine the two allegedly disjoint paradigms, i.e., GARCH processes driven by stable Paretian innovations, and investigate some of their theoretical and small-sample properties. Finally, we demonstrate the plausibility of the new models for several exchange-rate series involved in the Asian crisis.
KW - Asian crisis
KW - GARCH
KW - Stable Paretian distribution
KW - Summability test
UR - http://www.scopus.com/inward/record.url?scp=0001570441&partnerID=8YFLogxK
U2 - 10.1016/S0927-5398(00)00019-0
DO - 10.1016/S0927-5398(00)00019-0
M3 - Article
AN - SCOPUS:0001570441
SN - 0927-5398
VL - 7
SP - 389
EP - 416
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
IS - 3-4
ER -