Conditional Volatility and Distribution of Exchange Rates: GARCH and FIGARCH Models with NIG Distribution
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Rehim Kiliç
This paper extends the Fractionally integrated GARCH (FIGARCH) model by incorporating Normal Inverse Gaussian Distribution (NIG). The proposed model is flexible and allows one to model time-variation, long memory, fat tails as well as asymmetry and skewness in the distribution of financial returns. GARCH and FIGARCH models for daily log exchange rate returns with Normal, Student's t and NIG error distributions as well as GARCH/FIGARCH-in-mean models with t errors are estimated and compared both in terms of sample fit as well as out-of-the-sample predictive ability in several dimensions. The FIGARCH model with symmetric and asymmetric NIG errors outperform alternatives both in-sample fit and 1-day and 5-day ahead predictions of the quartiles of the exchange rate return distributions.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Conditional Volatility and Distribution of Exchange Rates: GARCH and FIGARCH Models with NIG Distribution
- Detecting Multiple Changes in Persistence
- Complex Dynamics in the Neoclassical Growth Model with Differential Savings and Non-Constant Labor Force Growth
- A Threshold Model of Real U.S. GDP and the Problem of Constructing Confidence Intervals in TAR Models
- Which Are the World's Wobblier Currencies? Reference Exchange Rates and Their Variation
- Wavelet Variance Analysis of Output in G-7 Countries
Articles in the same Issue
- Article
- Conditional Volatility and Distribution of Exchange Rates: GARCH and FIGARCH Models with NIG Distribution
- Detecting Multiple Changes in Persistence
- Complex Dynamics in the Neoclassical Growth Model with Differential Savings and Non-Constant Labor Force Growth
- A Threshold Model of Real U.S. GDP and the Problem of Constructing Confidence Intervals in TAR Models
- Which Are the World's Wobblier Currencies? Reference Exchange Rates and Their Variation
- Wavelet Variance Analysis of Output in G-7 Countries
