Stochastic Volatility Model with Burr Distribution Error: Evidence from Australian Stock Returns

Gopalan Nair, Khreshna Syuhada

    Research output: Contribution to journalArticle

    Abstract

    The Stochastic Volatility (SV) models have been extensively used as alternative models to the well known ARCH and GARCH models in order to represent the volatility behavior in financial return series. In this paper, we study the SV models with error distribution following a class of thick-tailed distributions, called Mode-Centered Burr distribution, in the place of Normal distribution. Through empirical analysis on Australian stock returns data we illustrate that the SV model with error as Mode-Center Burr distribution is more appropriate than the basic SV model. Furthermore, an extension of the basic SV model is investigated, in the direction of allowing the volatility to follow a second-order autoregressive process. Properties of this model such as the kurtosis and autocorrelation function are derived.
    Original languageEnglish
    Pages (from-to)1-14
    Number of pages14
    JournalThailand Statistician
    Volume14
    Issue number1
    Publication statusPublished - 2016

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