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Has the interaction between skewness and kurtosis of asset returns information content for risk forecasting?

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  • Jiménez, Inés
  • Mora-Valencia, Andrés
  • Perote, Javier

Abstract

This paper introduces the effect of the crossed products of Hermite polynomials on Gram-Charlier densities. This allows capturing the impact of the interaction between skewness and kurtosis and evaluating this new parameter as an additional source of information for risk management. We show that our modified Gram-Charlier density presents an improved accuracy, especially at distribution tails. Risk quantification is assessed for S&P500 losses with backtesting procedures for Value-at-Risk and Median Shortfall.

Suggested Citation

  • Jiménez, Inés & Mora-Valencia, Andrés & Perote, Javier, 2022. "Has the interaction between skewness and kurtosis of asset returns information content for risk forecasting?," Finance Research Letters, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003294
    DOI: 10.1016/j.frl.2022.103105
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    References listed on IDEAS

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    5. Jiménez, Inés & Mora-Valencia, Andrés & Perote, Javier, 2022. "Semi-nonparametric risk assessment with cryptocurrencies," Research in International Business and Finance, Elsevier, vol. 59(C).
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    More about this item

    Keywords

    Gram-charlier expansions; Skewness; Kurtosis; Value-at-risk; Median shortfall; Backtesting;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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