Stochastic volatility model with regime-switching skewness in heavy-tailed errors for exchange rate returns

Jouchi Nakajima

Studies in Nonlinear Dynamics & Econometrics, 2013, vol. 17, issue 5, 499-520

Abstract: A Bayesian analysis of the stochastic volatility model with regime-switching skewness in heavy-tailed errors is proposed using a generalized hyperbolic (GH) skew Student’s t-distribution. The skewness parameter is allowed to shift according to a first-order Markov switching process. We summarize Bayesian methods for model fitting and discuss analyses of exchange rate return time series. Empirical results show that interpretable regime-switching skewness can improve model fit and Value-at-Risk performance in a comparison against several other SV models with constant skewness or jump diffusions.

Keywords: exchange rate return; generalized hyperbolic skew Student’s t-distribution; regime-switching skewness; stochastic volatility; Value-at-Risk (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (15)

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DOI: 10.1515/snde-2012-0021

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