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A GMM Skewness and Kurtosis Ratio Test for Higher Moment Dependence

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Abstract

TThis article extends the variance ratio test of Lo and MacKinlay (1988) to tests of skewness and kurtosis ratios using the generalized methods of moments. In particular, overlapping observations are used in which dependencies are explicitly modelled so that more information can be used to make the tests more powerful and have better size properties. The proposed tests can be useful in risk management where risk models are estimated using daily data but multiperiod forecasts of tail risks are required for the determination of risk capital. Application of the tests finds significant higher moment dependence in the US stock markets.

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  • Wong, Woon K., 2016. "A GMM Skewness and Kurtosis Ratio Test for Higher Moment Dependence," Cardiff Economics Working Papers E2016/8, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2016/8
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    More about this item

    Keywords

    Skewness; kurtosis; overlapping observations; moments; cumulants;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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