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The two-sided Weibull distribution and forecasting financial tail risk

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  • Chen, Qian
  • Gerlach, Richard H.

Abstract

A two-sided Weibull is developed for modelling the conditional financial return distribution, for the purpose of forecasting tail risk measures. For comparison, a range of conditional return distributions are combined with four volatility specifications in order to forecast the tail risk in seven daily financial return series, over a four-year forecast period that includes the recent global financial crisis. The two-sided Weibull performs at least as well as other distributions for Value at Risk (VaR) forecasting, but performs most favourably for conditional VaR forecasting, prior to the crisis as well as during and after it.

Suggested Citation

  • Chen, Qian & Gerlach, Richard H., 2013. "The two-sided Weibull distribution and forecasting financial tail risk," International Journal of Forecasting, Elsevier, vol. 29(4), pages 527-540.
    • Handle: RePEc:eee:intfor:v:29:y:2013:i:4:p:527-540
    DOI: 10.1016/j.ijforecast.2013.01.007
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    7. Chao Wang & Qian Chen & Richard Gerlach, 2017. "Bayesian Realized-GARCH Models for Financial Tail Risk Forecasting Incorporating Two-sided Weibull Distribution," Papers 1707.03715, arXiv.org.
    8. Vica Tendenan & Richard Gerlach & Chao Wang, 2020. "Tail risk forecasting using Bayesian realized EGARCH models," Papers 2008.05147, arXiv.org, revised Aug 2020.
    9. J. P. Wang, 2016. "Reviews of seismicity around Taiwan: Weibull distribution," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 80(3), pages 1651-1668, February.
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    11. Salisu, Afees A. & Gupta, Rangan & Pierdzioch, Christian, 2022. "Predictability of tail risks of Canada and the U.S. Over a Century: The role of spillovers and oil tail Risks☆," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
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    13. J. Wang, 2016. "Reviews of seismicity around Taiwan: Weibull distribution," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 80(3), pages 1651-1668, February.
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