The Effect of Innovation Assumptions on Asymmetric GARCH Models for Volatility Forecasting

The modelling and forecasting of volatility in Time Series has been receiving great attention from researchers over the past years. In this topic, GARCH models are one of the most popular models. In this work, the effects of choosing different distribution families for the innovation process on asymmetric GARCH models are investigated. In particular, we compare A-PARCH models for the IBM stock data with Normal, Student's t, Generalized Error, skew Student's t and Pearson type-IV distributions. The main findings indicate that distributions with skewness have better performance than non-skewed distributions and that the Pearson IV distribution arises as a great candidate for the innovation process on asymmetric models.