Which parametric model for conditional skewness?

This paper addresses an existing gap in the developing literature on conditional skewness. We develop a simple procedure to evaluate parametric conditional skewness models. This procedure is based on regressing the realized skewness measures on model-implied conditional skewness values. We find that...

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Bibliographic Details
Published in:The European journal of finance 2016-10, Vol.22 (13), p.1237-1271
Main Authors: Feunou, Bruno, Jahan-Parvar, Mohammad R., Tédongap, Roméo
Format: Article
Language:English
Subjects:
conditional skewness
downside risk
Economic models
Expected returns
Mincer-Zarnowitz regression
realized skewness
Securities trading volume
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Summary:This paper addresses an existing gap in the developing literature on conditional skewness. We develop a simple procedure to evaluate parametric conditional skewness models. This procedure is based on regressing the realized skewness measures on model-implied conditional skewness values. We find that an asymmetric generalized autoregressive conditional heteroscedasticity specification on shape parameters with a skewed generalized error distribution provides the best in-sample fit for the data, as well as reasonable predictions of the realized skewness measure. Our empirical findings imply significant asymmetry with respect to positive and negative news in both conditional asymmetry and kurtosis processes.
ISSN:1351-847X
1466-4364
1466-4364
DOI:10.1080/1351847X.2013.877515