FORECASTING EXPECTED SHORTFALL WITH A GENERALIZED ASYMMETRIC STUDENT-T DISTRIBUTION

John Galbraith and Dongming Zhu ()

Departmental Working Papers from McGill University, Department of Economics

Abstract: Financial returns typically display heavy tails and some skewness, and cinditional vairance models with these features often outperform more limited models. The difference in performance may be especially important in estimating quantities that depend on tail features, including risk measures such as the expected shortfall. Here, using a recent generalization of the asymmetric Student-t distribution to allow separate parameters to control skewness and the thickness of each tail, we fit daily financial returns and forecast expected shortfall for the S&P 500 composite index; the generalized distribution is used for the standardized innovations in a nonlinear, asymmetric GARCH-type model. The results provide empirical evidence for the usefulness of the generalized distribution in improving prediction of downside market risk of financial assets.

JEL-codes: C16 G10 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2009-01
New Economics Papers: this item is included in nep-for and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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http://www.mcgill.ca/files/economics/forecasting_shortfall.pdf (application/pdf)

Related works:
Working Paper: Forecasting Expected Shortfall with a Generalized Asymmetric Student-t Distribution (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mcl:mclwop:2009-01

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