Ghent University Academic Bibliography

Advanced

The Time-Varying Asymmetry of Exchange Rate Returns : A Stochastic Volatility - Stochastic Skewness Model

Martin Iseringhausen UGent (2018) Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium.
abstract
While the volatility of financial returns has been extensively modelled as time-varying, skewness is usually either assumed constant or neglected by assuming symmetric model innovations. However, it has long been understood that accounting for (time-varying) asymmetry as a measure of crash risk is important for both investors and policy makers. This paper extends a standard stochastic volatility model to account for time-varying skewness. We estimate the model by extensions of traditional Bayesian Markov Chain Monte Carlo (MCMC) methods for stochastic volatility models. When applying this model to the returns of four major exchange rates, skewness is found to vary substantially over time. The results support a potential link between carry trading and crash risk. Finally, investors appear to demand compensation for a negatively skewed return distribution.
Please use this url to cite or link to this publication:
author
organization
year
type
misc
publication status
published
subject
keyword
Bayesian analysis, crash risk, foreign exchange, time variation
in
Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium
article number
2018/944
pages
33 pages
publisher
Ghent University, Faculty of Economics and Business Administration
place of publication
Ghent, Belgium
language
English
UGent publication?
yes
classification
V
copyright statement
I have retained and own the full copyright for this publication
id
8557488
handle
http://hdl.handle.net/1854/LU-8557488
date created
2018-03-27 12:23:21
date last changed
2018-05-14 09:09:47
@misc{8557488,
  abstract     = {While the volatility of financial returns has been extensively modelled as time-varying, skewness is usually either assumed constant or neglected by assuming symmetric model innovations. However, it has long been understood that accounting for (time-varying) asymmetry as a measure of crash risk is important for both investors and policy makers. This paper extends a standard stochastic volatility model to account for time-varying skewness. We estimate the model by extensions of traditional Bayesian Markov Chain Monte Carlo (MCMC) methods for stochastic volatility models. When applying this model to the returns of four major exchange rates, skewness is found to vary substantially over time. The results support a potential link between carry trading and crash risk. Finally, investors appear to demand compensation for a negatively skewed return distribution.},
  articleno    = {2018/944},
  author       = {Iseringhausen, Martin},
  keyword      = {Bayesian analysis,crash risk,foreign exchange,time variation},
  language     = {eng},
  pages        = {33},
  publisher    = {Ghent University, Faculty of Economics and Business Administration},
  series       = {Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium},
  title        = {The Time-Varying Asymmetry of Exchange Rate Returns : A Stochastic Volatility - Stochastic Skewness Model},
  year         = {2018},
}

Chicago
Iseringhausen, Martin. 2018. “The Time-Varying Asymmetry of Exchange Rate Returns : A Stochastic Volatility - Stochastic Skewness Model.” Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium. Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration.
APA
Iseringhausen, M. (2018). The Time-Varying Asymmetry of Exchange Rate Returns : A Stochastic Volatility - Stochastic Skewness Model. Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium. Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration.
Vancouver
1.
Iseringhausen M. The Time-Varying Asymmetry of Exchange Rate Returns : A Stochastic Volatility - Stochastic Skewness Model. Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium. Ghent, Belgium: Ghent University, Faculty of Economics and Business Administration; 2018.
MLA
Iseringhausen, Martin. “The Time-Varying Asymmetry of Exchange Rate Returns : A Stochastic Volatility - Stochastic Skewness Model.” Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 2018 : n. pag. Print.