Outliers and GARCH models in financial data

We propose to extend the additive outlier (AO) identification procedure developed by Franses and Ghijsels (Franses, P.H., Ghijsels, H., 1999. Additive outliers, GARCH and forecasting volatility. International Journal of Forecasting, 15, 1–9) to take into account the innovative outliers (IOs) in a GARCH model. We apply it to three daily stock market indexes and examine the effects of outliers on the diagnostics of normality.