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A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return
The Review of Economics and Statistics
Vol. 69, No. 3 (Aug., 1987), pp. 542-547
Published by: The MIT Press
Stable URL: http://www.jstor.org/stable/1925546
Page Count: 6
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The distribution of speculative price changes and rates of return data tend to be uncorrelated over time but characterized by volatile and tranquil periods. A simple time series model designed to capture this dependence is presented. The model is an extension of the Autoregressive Conditional Heteroskedastic (ARCH) and Generalized ARCH (GARCH) models obtained by allowing for conditionally t-distributed errors. The model can be derived as a simple subordinate stochastic process by including an additive unobservable error term in the conditional variance equation. The descriptive validity of the model is illustrated for a set of foreign exchange rates and stock price indices.
The Review of Economics and Statistics © 1987 The MIT Press