Direction-of-Change Forecasts for Asian Equity Markets Based on Conditional Variance, Skewness and Kurtosis Dynamics: Evidence from Hong Kong and Singapore
Peter F. Christoffersen () (McGill University and CIRANO) Francis X. Diebold () (University of Pennsylvania and NBER) Roberto S. Mariano () (School of Economics and Social Sciences, Singapore Management University) Anthony S. Tay () (School of Economics and Social Sciences, Singapore Management University) Yiu Kuen Tse () (School of Economics and Social Sciences, Singapore Management University)
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Recent theoretical work has revealed a direct connection between asset return volatility forecastability and asset return sign forecastability. This suggests that the pervasive volatility forecastability in equity returns could, via induced sign forecastability, be used to produce direction-ofchange forecasts useful for market timing. We attempt to do so in the context of two key Asian equity markets, with some success, as assessed by formal probability forecast scoring rules such as the Brier score. An important ingredient is our conditioning not only on conditional variance information, but also conditional skewness and kurtosis information, when forming direction-of-change forecasts.
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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number
02-2005.
Length: 26 pages Date of creation: Jul 2004 Date of revision:
Jan 2005 Publication status: Published in SMU Economics and Statistics Working Paper Series Handle: RePEc:siu:wpaper:02-2005