Testing conditional asymmetry. A residual-based approach
Lambert, Philippe Laurent, Sébastien Veredas, David
Lambert, Philippe
Laurent, Sébastien
Veredas, David
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Publication Type
Journal article
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Supervisor
Publication Year
2012
Journal
Journal of Economic Dynamics and Control
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Publication Volume
36
Publication Issue
8
Publication Begin page
1229
Publication End page
1247
Publication Number of pages
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Abstract
We propose three residual-based tests for conditional asymmetry. The distribution is assumed to fall into the class of skewed distributions of Fernández and Steel (1998). In this class, asymmetry is measured by the ratio between the probabilities of being larger and smaller than the mode. Estimation is performed under the null hypothesis of constant asymmetry of the innovations and, in a second step, tests for conditional asymmetry are performed on generalized residuals through parametric and nonparametric methods. We derive the asymptotic distribution of the tests that incorporates the uncertainty of the estimated parameters. A Monte Carlo study shows that neglecting this uncertainty severely biases the tests. An empirical application on a basket of daily returns reveals that financial data often present dynamics in the conditional skewness.
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Keywords
Accounting & Finance