Dynamic tail risk forecasting: what do realized skewness and kurtosis add?

TitleDynamic tail risk forecasting: what do realized skewness and kurtosis add?
Publication TypeWorking Paper
Year of Publication2024
AuthorsGallo, GM, Okhrin, O, Storti, G
Number24_16
ISBN Number978 88 68515 430
KeywordsCAViaR, Expected Shortfall, Realized Kurtosis, Realized Skewness, Value at Risk
Abstract

This paper compares the accuracy of tail risk forecasts with a focus on including realized skewness and kurtosis in ”additive” and ”multiplicative” models. Utilizing a panel of 960 US stocks, we conduct diagnostic tests, employ scoring functions, and implement rolling window forecasting to evaluate the performance of Value at Risk (VaR) and Expected Shortfall (ES) forecasts. Additionally, we examine the impact of the window length on forecast accuracy. We propose model specifications that incorporate realized skewness and kurtosis for enhanced precision. Our findings provide insights into the importance of considering skewness and kurtosis in tail risk modeling, contributing to the existing literature and offering practical implications for risk practitioners and researchers.

Citation Key8855
AttachmentSize
PDF icon wp-24-16.pdf1.35 MB