Forecasting the Density of Asset Returns

30 Pages Posted: 21 Jul 2008  

Trino-Manuel Niguez

affiliation not provided to SSRN

Javier Perote

Universidad Rey Juan Carlos - Department Economia; University of Salamanca

Date Written: October 2004

Abstract

In this paper we introduce a transformation of the Edgeworth-Sargan series expansion of the Gaussian distribution, that we call Positive Edgeworth-Sargan (PES). The main advantage of this new density is that it is well defined for all values in the parameter space, as well as it integrates up to one. We include an illustrative empirical application to compare its performance with other distributions, including the Gaussian and the Student's t, to forecast the full density of daily exchange-rate returns by using graphical procedures. Our results show that the proposed function outperforms the other two models for density forecasting, then providing more reliable value-at-risk forecasts.

JEL Classification: C16, C53, G12

Suggested Citation

Niguez, Trino-Manuel and Perote, Javier, Forecasting the Density of Asset Returns (October 2004). LSE STICERD Research Paper No. EM479. Available at SSRN: https://ssrn.com/abstract=1162631

Trino-Manuel Niguez (Contact Author)

affiliation not provided to SSRN

No Address Available

Javier Perote Peña

Universidad Rey Juan Carlos - Department Economia ( email )

Mostoles - Madrid, E-28933
Spain

University of Salamanca ( email )

Campus Miguel de Unamuno
Economia e Historia Economica
37008 Salamanca
Spain
34-923-294640 (Phone)
34-923-294686 (Fax)

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