Direction-of-Change Forecasts for Asian Equity Markets Based on Conditional Variance, Skewness and Kurtosis Dynamics: Evidence from Hong Kong and Singapore
Francis Diebold (),
Roberto Mariano (),
Anthony S Tay () and
Y. K. Tse ()
No 02-2005, Working Papers from Singapore Management University, School of Economics
Recent theoretical work has revealed a direct connection between asset return volatility forecastability and asset return sign forecastability. This suggests that the pervasive volatility forecastability in equity returns could, via induced sign forecastability, be used to produce direction-ofchange forecasts useful for market timing. We attempt to do so in the context of two key Asian equity markets, with some success, as assessed by formal probability forecast scoring rules such as the Brier score. An important ingredient is our conditioning not only on conditional variance information, but also conditional skewness and kurtosis information, when forming direction-of-change forecasts.
Keywords: Volatility; variance; skewness; kurtosis; market timing; asset management; asset allocation; portfolio management. (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fin, nep-fmk, nep-for, nep-rmg and nep-sea
Date: 2004-07, Revised 2005-01
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Published in SMU Economics and Statistics Working Paper Series
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