Testing Conditional Dynamics in Asymmetry. A Residual-Based Approach
AbstractWe propose three residual-based tests for conditional dynamic asymmetry. Estimation is performed under the null hypothesis of constant asymmetry of the innovations and, in a second step, the tests are performed either through a parametric model or a nonparametric method (runs). The working distribution is assumed to fall into the class of skewed distributions of Fernandez and Steel (1998) for which asymmetry is measured by the ratio between the probabilities of being larger and smaller than the mode. We derive the asymptotic distribution of the tests that incorporates the uncertainty of the estimated parameters in the first step. A Monte Carlo study shows that neglecting this uncertainty severely biases the tests and an empirical application on a basket of daily returns reveals that financial data often present dynamics in the conditional skewness.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2008_009.
Length: 29 p.
Date of creation: 2008
Date of revision:
Publication status: Published by:
Conditional skewness; asymmetry; residuals;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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