Modeling Threshold Conditional Heteroscedasticity with Regime-Dependent Skewness and Kurtosis

• Activity Number: 299
• Type: Contributed
• Date/Time: Tuesday, August 3, 2010 : 8:30 AM to 10:20 AM
• Sponsor: Business and Economic Statistics Section
• Author(s): Wai Keung Li*+
• Companies: The University of Hong Kong
• Keywords: Gram-Charlier density ; Kurtosis ; Lagrange-Multiplier test ; Skewness ; Threshold model

Abstract

Construction of nonlinear time series models with a flexible probabilistic structure is an important challenge for statisticians. Applications of such a time series model includes ecology, economics and finance. In this paper we consider a threshold model for all the first four conditional moments of a time series. The nonlinear structure in the conditional mean is specified by a threshold autoregression and that of the conditional variance by a threshold generalized autoregressive conditional heteroscedastic (GARCH) model. The Grame-Charlier (GC) density is used as the conditional innovation density and the skewness and kurtosis parameters are also allowed to have a threshold structure. The proposed model allows more flexibility in modelling and provides better insights into the structure of a time series.