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An Alternative Maximum Entropy Model for Time-Varying Moments with Application to Financial Returns

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Listed:
  • Herrmann Klaus

    (Friedrich-Alexander Universitat Erlangen-Nurnberg)

  • Fischer Matthias

    (Friedrich-Alexander Universitat Erlangen-Nurnberg)

Abstract

With their article on Maximum Entropy (ME) densities for time-varying moments, Rockinger and Jondeau (2002) set a milestone for the application of information theoretic principles to the analysis of financial market data. In this note we briefly discuss the application of their approach to financial data, point out some shortcomings that it encounters and show how these can be overcome. Applying our model to different market indices, we find evidence for time-variability of skewness and kurtosis.

Suggested Citation

  • Herrmann Klaus & Fischer Matthias, 2010. "An Alternative Maximum Entropy Model for Time-Varying Moments with Application to Financial Returns," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 14(3), pages 1-23, May.
    • Handle: RePEc:bpj:sndecm:v:14:y:2010:i:3:n:2
    DOI: 10.2202/1558-3708.1694
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    References listed on IDEAS

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    Cited by:

    1. Sylvia J. Soltyk & Felix Chan, 2023. "Modeling time‐varying higher‐order conditional moments: A survey," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 33-57, February.

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