Which Parametric Model for Conditional Skewness?

European Journal of Finance, Forthcoming

41 Pages Posted: 9 Mar 2007 Last revised: 11 Dec 2013

See all articles by Bruno Feunou

Bruno Feunou

Bank of Canada

Mohammad R. Jahan-Parvar

Board of Governors of the Federal Reserve System

Roméo Tédongap

ESSEC Business School

Date Written: November 2013

Abstract

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 fi nd that an asymmetric GARCH-type specifi cation on shape parameters with a skewed generalized error distribution provides the best in-sample fi t for the data, as well as reasonable predictions of the realized skewness measure. Our empirical fi ndings imply signi ficant asymmetry with respect to positive and negative news in both conditional asymmetry and kurtosis processes.

Keywords: Conditional skewness, Downside risk, Mincer-Zarnowitz regression, Realized skewness

JEL Classification: C22, C51, G12, G15

Suggested Citation

Feunou, Bruno and Jahan-Parvar, Mohammad R. and Tédongap, Roméo, Which Parametric Model for Conditional Skewness? (November 2013). European Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=968091 or http://dx.doi.org/10.2139/ssrn.968091

Bruno Feunou (Contact Author)

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
613-782-8302 (Phone)

HOME PAGE: http://kamkui.net/

Mohammad R. Jahan-Parvar

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://sites.google.com/site/mrjahan/

Roméo Tédongap

ESSEC Business School ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France
+33134439734 (Phone)
+33134439734 (Fax)

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