Article ID Journal Published Year Pages File Type
7357943 Journal of Econometrics 2018 22 Pages PDF
Abstract
Cross-sections of financial returns are characterized by common underlying factors and exhibit fat tails that may be captured by α-stable distributions. This paper focuses on estimating factor models with independent latent factors and idiosyncratic noises featuring a multivariate α-stable distribution constant over time (static factor models) or a time-varying conditional multivariate α-stable distribution (GARCH factor models). Although the simulation of such a distribution is straightforward, the estimation of its parameters encounters difficulties. These difficulties are overcome in this paper by implementing the indirect inference estimation method with the multivariate Student's t as the auxiliary distribution.
Related Topics
Physical Sciences and Engineering Mathematics Statistics and Probability
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