3. Comparison of models

One way to start comparing the models is to compute the likelihood ratio test. The LR test statistic has been used to compare the standard GARCH model (restricted model) and GARCHSK model (unrestricted model), where Johnson Su distribution is assumed for the standardized error zt in both specifications. The results are contained in Table 7. The value of the LR statistic is quite large in all return series. This means that the GARCHSK model is showing superior performance than the standard GARCH model with constant shape parameters.


Table 7. Likelihood ratio tests for all daily returns of stock and exchange rate series.
