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An Empirical Comparison of Linear and Nonlinear Volatility Models for Nordic Stock Returns

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  • Kulp-Tåg, Sofie

    (Swedish School of Economics and Business Administration)

Abstract

This paper examines how volatility in financial markets can preferable be modeled. The examination investigates how good the models for the volatility, both linear and nonlinear, are in absorbing skewness and kurtosis. The examination is done on the Nordic stock markets, including Finland, Sweden, Norway and Denmark. Different linear and nonlinear models are applied, and the results indicates that a linear model can almost always be used for modeling the series under investigation, even though nonlinear models performs slightly better in some cases. These results indicate that the markets under study are exposed to asymmetric patterns only to a certain degree. Negative shocks generally have a more prominent effect on the markets, but these effects are not really strong. However, in terms of absorbing skewness and kurtosis, nonlinear models outperform linear ones.

Suggested Citation

  • Kulp-Tåg, Sofie, 2007. "An Empirical Comparison of Linear and Nonlinear Volatility Models for Nordic Stock Returns," Working Papers 525, Hanken School of Economics.
    • Handle: RePEc:hhb:hanken:0525
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    References listed on IDEAS

    as
    1. Forsman, Maria & Solitander, Nikodemus, 2004. "The Context and Diffusion of Knowledge in the Finnish Jewellery Industry - The role of The House of Fabergé," Working Papers 506, Hanken School of Economics.
    2. Ahlgren, N. & Antell, J., 2008. "Bootstrap and fast double bootstrap tests of cointegration rank with financial time series," Computational Statistics & Data Analysis, Elsevier, vol. 52(10), pages 4754-4767, June.
    3. Rokkanen, Nikolas, 2007. "With Good Reputation Size Does not Matter: Issue Frequency and the Determinants of Debt Maturity," Working Papers 522, Hanken School of Economics.
    4. Böckerman, Petri & Johansson, Edvard & Jousilahti, Pekka & Uutela, Antti, 2007. "The Physical Strenuousness of Work is Slightly Associated with an Upward Trend in the Body Mass Index," Working Papers 523, Hanken School of Economics.
    5. Ekholm, Anders & von Nandelstadh, Alexander, 2004. "Do Analysts Leak Information to Preferred Customers?," Working Papers 505, Hanken School of Economics.
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