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Bayesian modelling of skewness and kurtosis with two-piece scale and shape transformations

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  • Rubio, Francisco Javier
  • Steel, Mark F. J.

Abstract

We introduce the family of univariate double two–piece distributions, obtained by using a density– based transformation of unimodal symmetric continuous distributions with a shape parameter. The resulting distributions contain five interpretable parameters that control the mode, as well as the scale and shape in each direction. Four-parameter subfamilies of this class of distributions that capture different types of asymmetry are presented. We propose interpretable scale and location-invariant benchmark priors and derive conditions for the existence of the corresponding posterior distribution. The prior structures used allow for meaningful comparisons through Bayes factors within flexible families of distributions. These distributions are applied to models in finance, internet traffic data, and medicine, comparing them with appropriate competitors.

Suggested Citation

  • Rubio, Francisco Javier & Steel, Mark F. J., 2014. "Bayesian modelling of skewness and kurtosis with two-piece scale and shape transformations," MPRA Paper 57102, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57102
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    References listed on IDEAS

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    3. Zhu, Dongming & Galbraith, John W., 2010. "A generalized asymmetric Student-t distribution with application to financial econometrics," Journal of Econometrics, Elsevier, vol. 157(2), pages 297-305, August.
    4. Frank Critchley & M. C. Jones, 2008. "Asymmetry and Gradient Asymmetry Functions: Density‐Based Skewness and Kurtosis," Scandinavian Journal of Statistics, Danish Society for Theoretical Statistics;Finnish Statistical Society;Norwegian Statistical Association;Swedish Statistical Association, vol. 35(3), pages 415-437, September.
    5. Fernández, Carmen & Steel, Mark F.J., 2000. "Bayesian Regression Analysis With Scale Mixtures Of Normals," Econometric Theory, Cambridge University Press, vol. 16(1), pages 80-101, February.
    6. Adelchi Azzalini & Antonella Capitanio, 2003. "Distributions generated by perturbation of symmetry with emphasis on a multivariate skew t‐distribution," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(2), pages 367-389, May.
    7. Kjersti Aas & Ingrid Hobaek Haff, 2006. "The Generalized Hyperbolic Skew Student's t-Distribution," Journal of Financial Econometrics, Oxford University Press, vol. 4(2), pages 275-309.
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    10. Zhu, Dongming & Galbraith, John W., 2011. "Modeling and forecasting expected shortfall with the generalized asymmetric Student-t and asymmetric exponential power distributions," Journal of Empirical Finance, Elsevier, vol. 18(4), pages 765-778, September.
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    Cited by:

    1. Mark F. J. Steel & Francisco J. Rubio, 2015. "Discussion," International Statistical Review, International Statistical Institute, vol. 83(2), pages 218-222, August.

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    More about this item

    Keywords

    model comparison; posterior existence; prior elicitation; scale mixtures of normals; unimodal continuous distributions;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions

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