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Title:Necessary and sufficient restrictions for existence of a unique fourth moment of a univariate GARCH(p,q) process PDF Logo
Authors:Zadrozny, Peter A.
Issue Date:2005
Series/Report no.:CESifo working papers 1505
Abstract:A univariate GARCH(p,q) process is quickly transformed to a univariate autoregressive moving-average process in squares of an underlying variable. For positive integer m, eigenvalue restrictions have been proposed as necessary and sufficient restrictions for existence of a unique mth moment of the output of a univariate GARCH process or, equivalently, the 2mth moment of the underlying variable. However, proofs in the literature that an eigenvalue restriction is necessary and sufficient for existence of unique 4th or higher even moments of the underlying variable, are either incorrect, incomplete, or unecessarily long. Thus, the paper contains a short and general proof that an eigenvalue restriction is necessary and sufficient for existence of a unique 4th moment of the underlying variable of a univariate GARCH process. The paper also derives an expression for computing the 4th moment in terms of the GARCH parameters, which immediately implies a necessary and sufficient inequality restriction for existence of the 4th moment. Because the inequality restriction is easily computed in a finite number of basic arithmetic operations on the GARCH parameters and does not require computing eigenvalues, it provides an easy means for computing "by hand" the 4th moment and for checking its existence for low-dimensional GARCH processes. Finally, the paper illustrates the computations with some GARCH(1,1) processes reported in the literature.
Subjects:state-space form
Lyapunov equations
nonnegative and irreducible matrices
JEL:C32
G12
C63
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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