Testing Conditional Dynamics in Asymmetry. A Residual-Based Approach

Philippe Lambert and Sébastien Laurent

No 2008_009, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: We propose three residual-based tests for conditional dynamic asymmetry. Estimation is performed under the null hypothesis of constant asymmetry of the innovations and, in a second step, the tests are performed either through a parametric model or a nonparametric method (runs). The working distribution is assumed to fall into the class of skewed distributions of Fernandez and Steel (1998) for which asymmetry is measured by the ratio between the probabilities of being larger and smaller than the mode. We derive the asymptotic distribution of the tests that incorporates the uncertainty of the estimated parameters in the first step. A Monte Carlo study shows that neglecting this uncertainty severely biases the tests and an empirical application on a basket of daily returns reveals that financial data often present dynamics in the conditional skewness.

Keywords: Conditional skewness; asymmetry; residuals (search for similar items in EconPapers)
JEL-codes: C32 E44 G14 (search for similar items in EconPapers)
Pages: 29 p.
Date: 2008
New Economics Papers: this item is included in nep-mac
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