Direction-of-Change Forecasts Based on Conditional Variance, Skewness and Kurtosis Dynamics: International Evidence

Peter F. Christoffersen, Francis Diebold (), Roberto S. Mariano (), Anthony S Tay () and Y. K. Tse ()

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

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-of change forecasts useful for market timing. We attempt to do so in an international sample of developed 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 mean and variance information, but also conditional skewness and kurtosis information, when forming direction-of-change forecasts.

Keywords: Volatility; variance; skewness; kurtosis; market timing; asset management; asset allocation; portfolio management (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-ecm, nep-ets, nep-fin, nep-fmk, nep-for and nep-sea
Date: 2006-02-01
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Related works:
Working Paper: Direction-of-Change Forecasts Based on Conditional Variance, Skewness and Kurtosis Dynamics- International Evidence (2009)
Working Paper: Direction-of-Change Forecasts Based on Conditional Variance, Skewness and Kurtosis Dynamics- International Evidence (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:pen:papers:06-016

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