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The Impact of News on Higher Moments

Author

Listed:
  • Eric Jondeau

    (University of Lausanne and Swiss Finance Institute)

  • Michael Rockinger

    (University of Lausanne and Swiss Finance Institute)

Abstract

In this paper, we extend the concept of News Impact Curve developed by Engle and Ng (1993) to the higher moments of the multivariate returns' distribution, thereby providing a tool to investigate the impact of shocks on the characteristics of the subsequent distribution. For this purpose, we present a new methodology to describe the joint distribution of returns in a non-normal setting. This methodology allows to gain a better understanding of the temporal evolution of the returns' distribution and can be used to analyze the behavior of the optimal portfolio distribution. We apply our methodology to provide stylized facts on the four largest international stock markets. In particular, we document the persistence in large (positive or negative) daily returns. In a multivariate setting, we find that foreign holdings provide a good hedge against changes in domestic volatility after good shocks but a bad hedge after crashes.

Suggested Citation

  • Eric Jondeau & Michael Rockinger, 2006. "The Impact of News on Higher Moments," Swiss Finance Institute Research Paper Series 06-28, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp0628
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    File URL: http://ssrn.com/abstract=947082
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    Cited by:

    1. Changli He & Annastiina Silvennoinen & Timo Teräsvirta, 2008. "Parameterizing Unconditional Skewness in Models for Financial Time Series," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 6(2), pages 208-230, Spring.

    More about this item

    Keywords

    Volatility; Skewness; Kurtosis; GARCH model; Multivariate skewed Student t distribution; Stock returns;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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