Dynamic tail risk forecasting: what do realized skewness and kurtosis add?

Giampiero Gallo (), O. Okhrin and G. Storti

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: This paper compares the accuracy of tail risk forecasts with a focus on including realized skewness and kurtosis in "additive" and "multiplicative" models. Utilizing a panel of 960 US stocks, we conduct diagnostic tests, employ scoring functions, and implement rolling window forecasting to evaluate the performance of Value at Risk (VaR) and Expected Shortfall (ES) forecasts. Additionally, we examine the impact of the window length on forecast accuracy. We propose model specifications that incorporate realized skewness and kurtosis for enhanced precision. Our findings provide insights into the importance of considering skewness and kurtosis in tail risk modeling, contributing to the existing literature and offering practical implications for risk practitioners and researchers.

Keywords: Value at Risk; CAViaR; Expected Shortfall; Realized Skewness; Realized Kurtosis (search for similar items in EconPapers)
Date: 2024
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https://crenos.unica.it/crenos/sites/default/files/wp-24-16.pdf (application/pdf)

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Working Paper: Dynamic tail risk forecasting: what do realized skewness and kurtosis add? (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:202416

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