Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7357943 | Journal of Econometrics | 2018 | 22 Pages |
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
Authors
Giorgio Calzolari, Roxana Halbleib,