Realized skewness of oil price returns and the short-term predictability for exchange rate

Yaojie Zhang, Yuqing Feng and Chaojian Wei

Quantitative Finance, 2025, vol. 25, issue 7, 1031-1046

Abstract: When predicting exchange rate returns, existing models find it difficult to defeat naive random walk models. We propose the realized skewness of oil returns to predict exchange rates for nine countries. The results show that it is statistically and economically more effective than the random walk model. Moreover, realized skewness can offer complementary predictive information about what is previously known about oil prices and oil volatility. It is noteworthy that the superior predictability of realized skewness is linked to inflation rates, behavioral bias, and risk transmission channels. Furthermore, the predictive power of realized skewness for exchange rates stems from the jump and drift components.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:25:y:2025:i:7:p:1031-1046

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DOI: 10.1080/14697688.2025.2522177

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