Modeling Asset Returns : A Comparison of Theoretical and Empirical Models

Lüders, Erik ; Schröder, Michael

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URN: urn:nbn:de:bsz:180-madoc-1129
Document Type: Working paper
Year of publication: 2004
The title of a journal, publication series: None
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: G12 G15 C22 ,
Subject headings (SWD): Anlagepolitik
Abstract: This paper presents and compares several time-series models for returns of broad-based stock indices. These models nest a nonlinear asymetric GARCH (NGARCH) model as a special case. Some of these models are empirically motivated ad-hoc specifications others are derived from a representative investor economy with HARA-utility and some are behavioral, i.e. are based on recent findings in behavioral finance. To compare these models we use the inflation adjusted MSCI total return indices of 5 large economies, USA, United Kingdom, Germany, France and Japan. The empirical results show that although the pure NGARCH model performs well, the estimation for two indices could be significantly improved by an extension which follows from the representative investor model with HARA-utility.
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