[en] This paper studies dynamic skewness and kurtosis specifications for the purpose of directional forecasts of daily exchange rates. To do so, we formulate a GARCH-in-mean model where the innovations follow a non-Gaussian sinh-arcsinh distribution with time-varying asymmetry and shape parameters. The structural equations of these parameters allow for an effect of past stochastic shocks, autoregressive terms and interest rate differential on conditional dynamic. This model is used to predict the direction of change of three major currency pairs (USD/EUR, USD/GBP and USD/CHF) over the period 1999-2016. To account for structural breaks, we consider a state-of-the-art CUSUM test based on the probability integral transform
Disciplines :
Quantitative methods in economics & management
Author, co-author :
Hambuckers, julien ; Université de Liège - ULiège > HEC Liège : UER > Statistique appliquée à la gestion et à l'économie
Language :
English
Title :
On conditional dynamic skewness and directional forecast of currency exchange rates
