Rolling-sampled parameters of ARCH and Levy-stable models

Degiannakis, Stavros and Livada, Alexandra and Panas, Epaminondas (2008): Rolling-sampled parameters of ARCH and Levy-stable models. Published in: Applied Economics , Vol. 23, No. 40 (2008): pp. 3051-3067.

Abstract

In this paper an asymmetric autoregressive conditional heteroskedasticity (ARCH) model and a Levy-stable distribution are applied to some well-known financial indices (DAX30, FTSE20, FTSE100 and SP500), using a rolling sample of constant size, in order to investigate whether the values of the estimated parameters of the models change over time. Although, there are changes in the estimated parameters reflecting that structural properties and trading behaviour alter over time, the ARCH model adequately forecasts the one-day-ahead volatility. A simulation study is run to investigate whether the time variant attitude holds in the case of a generated ARCH data process revealing that even in that case the rolling-sampled parameters are time-varying.

• Item Type: MPRA Paper
• Language: English
• Keywords: ARCH model, GED distribution, Leverage effect, Levy-stable distribution, Rolling sample, Spill over, Value at risk.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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