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Direction-of-Change Forecasts for Asian Equity Markets Based on Conditional Variance, Skewness and Kurtosis Dynamics: Evidence from Hong Kong and Singapore

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Peter F. Christoffersen & Francis X. Diebold & Roberto S. Mariano & Anthony S. Tay & Yiu Kuen Tse, 2004. "Direction-of-Change Forecasts for Asian Equity Markets Based on Conditional Variance, Skewness and Kurtosis Dynamics: Evidence from Hong Kong and Singapore," Working Papers 02-2005, Singapore Management University, School of Economics, revised Jan 2005.
  • Handle: RePEc:siu:wpaper:02-2005
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    File URL: https://mercury.smu.edu.sg/rsrchpubupload/4872/CDMTT.pdf
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    More about this item

    Keywords

    Volatility; variance; skewness; kurtosis; market timing; asset management; asset allocation; portfolio management.;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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