Abstract
We propose and estimate a new class of equity return models that incorporate scale mixtures of the skew-normal distribution for the error distribution into the standard stochastic volatility framework. The main advantage of our models is that they can simultaneously accommodate the skewness, heavy-tailedness, and leverage effect of equity index returns observed in the data. The proposed models are flexible and parsimonious, and include many asymmetrically heavy-tailed error distributions-such as skew-t and skew-slash distributions-as special cases. We estimate a variety of specifications of our models using the Bayesian Markov Chain Monte Carlo method, with data on daily returns of the S&P 500 index over 1987-2009. We find that the proposed models outperform existing ones of index returns.
Original language | English (US) |
---|---|
Article number | 1450011 |
Journal | Quarterly Journal of Finance |
Volume | 4 |
Issue number | 3 |
DOIs | |
State | Published - Sep 1 2014 |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
- Strategy and Management