nep-ecm New Economics Papers
on Econometrics
Issue of 2006‒06‒10
eight papers chosen by
Sune Karlsson
Orebro University

  1. A Consistent Model Specification Test with Mixed Discrete and Continuous Data By Cheng Hsiao; Qi Li; Jeff Racine
  2. Designing realised kernels to measure the ex-post variation of equity prices in the presence of noise By Neil Shephard; Ole E. Barndorff-Nielsen; Peter Reinhard Hansen; Asger Lunde
  3. Panel Data Analysis - Advantages and Challenges By Cheng Hsiao
  4. The Spline GARCH Model for Unconditional Volatility and its Global Macroeconomic Causes By Robert F. Engle; Jose Gonzalo Rangel
  5. General to Specific Modelling of Exchange Rate Volatility : a Forecast Evaluation By Luc, BAUWENS; Genaro, SUCARRAT
  6. Solving SDGE Models: A New Algorithm for the Sylvester Equation By Ondrej Kamenik
  7. Baysian Quantile Regression By Tony Lancaster; Sung Jae Jun
  8. A Note on Brootstraps and Robustness By Tony Lancaster

  1. By: Cheng Hsiao; Qi Li; Jeff Racine
    Abstract: In this paper we propose a nonparametric kernel-based model specification test that can be used when the regression model contains both discrete and continuous regressors. We employ discrete variable kernel functions and we smooth both the discrete and continuous regressors using least squares cross-validation methods. The test statistic is shown to have an asymptotic normal null distribution. We also prove the validity of using the wild bootstrap method to approximate the null distribution of the test statistic, the bootstrap being our preferred method for obtaining the null distribution in practice. Simulations show that the proposed test has significant power advantages over conventional kernel tests which rely upon frequency-based nonparametric estimators that require sample splitting to handle the presence of discrete regressors.
    Keywords: Consistent test, parametric functional form, nonparametric estimation
    JEL: C12 C14
    Date: 2006–04
  2. By: Neil Shephard; Ole E. Barndorff-Nielsen; Peter Reinhard Hansen; Asger Lunde
    Abstract: This paper shows how to use realised kernels to carry out efficient feasible inference on the ex-post variation of underlying equity prices in the presence of simple models of market frictions. The issue is subtle with only estimators which have symmetric weights delivering consistent estimators with mixed Gaussian limit theorems. The weights can be chosen to achieve the best possible rate of convergence and to have an asymptotic variance which is close to that of the maximum likelihood estimator in the parametric version of this problem. Realised kernels can also be selected to (i) be analysed using endogenously spaced data such as that in databases on transactions, (ii) allow for market frictions which are endogenous, (iii) allow for temporally dependent noise. The finite sample performance of our estimators is studied using simulation, while empirical work illustrates their use in practice.
    Keywords: Bipower variation, Long run variance estimator, Market frictions, Quadratic variation, Realised variance
    JEL: C13 C22
    Date: 2006
  3. By: Cheng Hsiao
    Abstract: We explain the proliferation of panel data studies in terms of (i) data availability, (ii) the more heightened capacity for modeling the complexity of human behavior than a single cross-section or time series data can possibly allow, and (iii) challenging methodology. Advantages and issues of panel data modeling are also discussed.
    Keywords: Panel data, Longitudinal data, Unobserved heterogeneity, Random effects, Fixed effects
    Date: 2006–05
  4. By: Robert F. Engle; Jose Gonzalo Rangel
    Abstract: 25 years of volatility research has left the macroeconomic environment playing a minor role. This paper proposes modeling equity volatilities as a combination of macroeconomic effects and time series dynamics. High frequency return volatility is specified to be the product of a slow moving deterministic component, represented by an exponential spline, and a unit GARCH. This deterministic component is the unconditional volatility, which is then estimated for nearly 50 countries over various sample periods of daily data. Unconditional volatility is then modeled as an unbalanced panel with a variety of dependence structures. It is found to vary over time and across countries with high unconditional volatility resulting from high volatility in the macroeconomic factors GDP, inflation and short term interest rate, and with high inflation and slow growth of output. Volatility is higher for emerging markets and for markets with small numbers of listed companies and market capitalization, but also for large economies. The model allows long horizon forecasts of volatility to depend on macroeconomic developments, and delivers estimates of the volatility to be anticipated in a newly opened market.
    Keywords: . Arch, garch, global volatility, spline and volatility.
    JEL: C14 C19
    Date: 2005–12
  5. By: Luc, BAUWENS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Genaro, SUCARRAT
    Abstract: The general-to-specific (GETS) approach to modelling is widely employed in the modelling of economic series, but less so in financial volatility modelling due to computational complexity when many explanatory variables are involved. This study proposes a simple way of avoiding this problem and undertakes an out-of-sample forecast evaluation of the methodology applied to the modelling of weekly exchange rate volatility. Our findings suggest that GETS specifications are especially valuable in conditional forecasting, since the specification that employs actual values on the uncertain information performs particularly well.
    Keywords: Exchange Rate Volatility, General to Specific, Forecasting
    JEL: C53 F31
    Date: 2006–02–15
  6. By: Ondrej Kamenik
    Abstract: This paper presents a new numerical algorithm for solving the Sylvester equation involved in higher-order perturbation methods developed for solving stochastic dynamic general equilibrium models. The new algorithm surpasses other methods used so far (including the very popular doubling algorithm) in terms of computational time, memory consumption, and numerical stability.
    Keywords: Dynamic general equilibrium, doubling algorithm, perturbation approach, recursive algorithm.
    JEL: C63 C68
    Date: 2005–12
  7. By: Tony Lancaster; Sung Jae Jun
    Date: 2006
  8. By: Tony Lancaster
    Date: 2006

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