Testing for persistence in stock returns with GARCH-stable shocks
We investigate persistence in CRSP monthly excess stock returns, using a state space model with stable disturbances. The non-Gaussian state space model with volatility persistence is estimated by maximum likelihood, using the optimal filtering algorithm given by Sorenson and Alspach (1971 Automatica 7 465-79). The conditional distribution has a stable α of 1.89, and normality is strongly rejected even after accounting for GARCH. However, stock returns do not contain a significant mean-reverting component. The optimal predictor is the unconditional expectation of the series, which we estimate to be 9.8% per annum.
Year of publication: |
2004
|
---|---|
Authors: | Bidarkota, Prasad ; Mcculloch, J Huston |
Published in: |
Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 4.2004, 3, p. 256-265
|
Publisher: |
Taylor & Francis Journals |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Measuring the Term Structure of Interest Rates.
McCulloch, J Huston, (1971)
-
State-Space Times Series Modeling of Structural Breaks
McCulloch, J Huston, (2000)
-
An Estimate of the Liquidity Premium.
McCulloch, J Huston, (1975)
- More ...