nep-ets New Economics Papers
on Econometric Time Series
Issue of 2005‒09‒29
sixteen papers chosen by
Yong Yin
SUNY at Buffalo

  1. Testing the bivariate distribution of daily equity returns using copulas. An application to the Spanish stock market By Oriol Roch and Antonio Alegre
  2. Estimation and Testing of Dynamic Models with Generalized Hyperbolic Innovations By Mencía, Javier; Sentana, Enrique
  3. Non-stationary Hours in a DSGE Model By Chang, Yongsung; Doh, Taeyoung; Schorfheide, Frank
  4. Bayesian Analysis of DSGE Models By An, Sungbae; Schorfheide, Frank
  5. Efficient Rank Reduction of Correlation Matrices By Grubišić, I.; Pietersz, R.
  6. A Hierarchical Bayes Error Correction Model to Explain Dynamic Effects of Price Changes By Fok, D.; Paap, R.; Horv?th, C.; Franses, Ph.H.B.F.
  7. Testing for Parameter Stability in Dynamic Models across Frequencies By Candelon,Bertrand; Cubadda,Gianluca
  8. Evidences of Interdependence and Contagion using a Frequency Domain Framework By Bodart,Vincent; Candelon,Bertrand
  9. Has output become more predictable? changes in Greenbook forecast accuracy By Peter Tulip
  10. General-to-specific modeling: an overview and selected bibliography By Julia Campos; Neil R. Ericsson; David F. Hendry
  11. Idiosyncratic volatility, stock market volatility, and expected stock returns By Hui Guo; Robert Savickas
  12. Forecasts of U.S. short-term interest rates: a flexible forecast combination approach By Massimo Guidolin; Allan Timmerman
  13. Level-ARCH Short Rate Models with Regime Switching: Bivariate Modeling of US and European Short Rates. By Christiansen, Charlotte
  14. Integration at a cost: Evidence from volatility impulse response functions By E.Panopoulou; T. Pantelidis
  15. Asymptotic convergence of weighted random matrices: nonparametric cointegration analysis for I(2) processes. By Roy Cerqueti and Mauro Costantini
  16. Nonlinear and Complex Dynamics in Real Systems By William Barnett; Apostolos Serletis; Demitre Serletis

  1. By: Oriol Roch and Antonio Alegre (Universitat de Barcelona)
    Abstract: In this paper we deal with the identification of dependencies between time series of equity returns. Marginal distribution functions are assumed to be known, and a bivariate chi-square test of fit is applied in a fully parametric copula approach. Several families of copulas are fitted and compared with Spanish stock market data. The results show that the t-copula generally outperforms other dependence structures, and highlight the difficulty in adjusting a significant number of bivariate data series.
    Keywords: Copulas, Daily equity returns, Bivariate chi-square statistic, Risk Management.
    Date: 2005
  2. By: Mencía, Javier; Sentana, Enrique
    Abstract: We analyse the Generalised Hyperbolic distribution adequacy to model kurtosis and asymmetries in multivariate conditionally heteroskedastic dynamic regression models. We standardise this distribution, obtain analytical expressions for the log-likelihood score, and explain how to evaluate the information matrix. We also derive tests for the null hypotheses of multivariate normal and Student t innovations, and decompose them into skewness and kurtosis components, from which we obtain more powerful one-sided versions. Finally, we present an empirical application to five NASDAQ sectorial stock returns that indicates that their conditional distribution is asymmetric and leptokurtic, which can be successfully exploited for risk management purposes.
    Keywords: inequality constraints; Kurtosis; Multivariate Normality Test; skewness; student t; Supremum Test; tail dependence
    JEL: C32 C52 G11
    Date: 2005–08
  3. By: Chang, Yongsung; Doh, Taeyoung; Schorfheide, Frank
    Abstract: The time series fit of dynamic stochastic general equilibrium (DSGE) models often suffers from restrictions on the long-run dynamics that are at odds with the data. Relaxing these restrictions can close the gap between DSGE models and vector autoregressions. This paper modifies a simple stochastic growth model by incorporating permanent labor supply shocks that can generate a unit root in hours worked. Using Bayesian methods we estimate two versions of the DSGE model: the standard specification in which hours worked are stationary and the modified version with permanent labor supply shocks. We find that the data support the latter specification.
    Keywords: Bayesian econometrics; DSGE models; non-stationary hours
    JEL: C32 E52 F41
    Date: 2005–09
  4. By: An, Sungbae; Schorfheide, Frank
    Abstract: This paper reviews Bayesian methods that have been developed in recent years to estimate and evaluate dynamic stochastic general equilibrium (DSGE) models. We consider the estimation of linearized DSGE models, the evaluation of models based on Bayesian model checking, posterior odds comparisons, and comparisons to a reference model, as well as the estimation of second-order accurate solutions of DSGE models. These methods are applied to data generated from a linearized DSGE model, a vector autoregression that violates the cross-coefficient restrictions implied by the linearized DSGE model, and a DSGE model that was solved with a second-order perturbation method.
    Keywords: Bayesian analysis; DSGE models; model evaluation; vector autoregressions
    JEL: C11 C32 C51 C52
    Date: 2005–09
  5. By: Grubišić, I.; Pietersz, R. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: Geometric optimisation algorithms are developed that efficiently find the nearest low-rank correlation matrix. We show, in numerical tests, that our methods compare favourably to the existing methods in the literature. The connection with the Lagrange multiplier method is established, along with an identification of whether a local minimum is a global minimum. An additional benefit of the geometric approach is that any weighted norm can be applied. The problem of finding the nearest low-rank correlation matrix occurs as part of the calibration of multi-factor interest rate market models to correlation.
    Keywords: Geometric optimisation;Correlation matrix;Rank;LIBOR market model;
    Date: 2005–04–03
  6. By: Fok, D.; Paap, R.; Horv?th, C.; Franses, Ph.H.B.F. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: The authors put forward a sales response model to explain the differences in immediate and dynamic effects of promotional prices and regular prices on sales. The model consists of a vector autoregression rewritten in error-correction format which allows to disentangle the immediate effects from the dynamic effects. In a second level of the model, the immediate price elasticities, the cumulative promotional price elasticity and the long-run regular price elasticity are correlated with various brand-speciffic and category-speciffic characteristics. The model is applied to seven years of data on weekly sales of 100 different brands in 25 product categories. We find many significant moderating effects on the elasticity of price promotions. Brands in categories that are characterized by high price differentiation and that constitute a lower share of budget are less sensitive to price discounts. Deep price discounts turn out to increase the immediate price sensitivity of customers. We also find significant effects for the cumulative elasticity. The immediate effect of a regular price change is often close to zero. The long-run effect of such a decrease usually amounts to an increase in sales. This is especially true in categories characterized by a large price dispersion, frequent price promotions and hedonic, non-perishable products.
    Keywords: Sales;Vector Autoregression;Marketing Mix;Promotional and Regular Price;Short and Long-term Effects;Hierarchical Bayes;
    Date: 2005–09–08
  7. By: Candelon,Bertrand; Cubadda,Gianluca (METEOR)
    Abstract: This paper contributes to the econometric literature on structural breaks by proposinga test for parameter stability in VAR models at a particular frequency ω, where ω ∈ [0, π].When a dynamic model is affected by a structural break, the new tests allow for detectingwhich frequencies of the data are responsible for parameter instability. If the model is locallystable at the frequencies of interest, the whole sample size can be then exploited despite the presence of a break. Two empirical examples illustrate that local instability can concernonly the lower frequencies (decrease in the postwar U.S. productivity) or higher frequencies(change in the U.S. monetary policy in the early 80’s).
    Keywords: econometrics;
    Date: 2005
  8. By: Bodart,Vincent; Candelon,Bertrand (METEOR)
    Abstract: The purpose of this paper is to propose a new measure of contagion. Our approach to testing contagion is based on the frequency analysis of causality developed recently by Breitung and Candelon (2004). This approach handles, in a unified framework, several of the statistical problems identified in the literature. It also permits clear differentiation between temporary and permanent shifts in cross-market linkages: the first case is contagion while the second one is simply a measure of interdependence among markets. In examining the ”Tequila” and Asian crises, we find evidence for contagion during both. It also turns out that during the Asian crisis both contagion and higher interdependence have contributed simultaneously to the diffusion of the crisis in Asia. The spillover effects of these crises have been geographically limited to the region where the shock originated.
    Keywords: macroeconomics ;
    Date: 2005
  9. By: Peter Tulip
    Abstract: Several researchers have recently documented a large reduction in output volatility. In contrast, this paper examines whether output has become more predictable. Using forecasts from the Federal Reserve Greenbooks, I find the evidence is somewhat mixed. Output seems to have become more predictable at short horizons, but not necessarily at longer horizons. The reduction in unpredictability is much less than the reduction in volatility. Associated with this, recent forecasts had little predictive power.
    Date: 2005
  10. By: Julia Campos; Neil R. Ericsson; David F. Hendry
    Abstract: This paper discusses the econometric methodology of general-to-specific modeling, in which the modeler simplifies an initially general model that adequately characterizes the empirical evidence within his or her theoretical framework. Central aspects of this approach include the theory of reduction, dynamic specification, model selection procedures, model selection criteria, model comparison, encompassing, computer automation, and empirical implementation. This paper thus reviews the theory of reduction, summarizes the approach of general-to-specific modeling, and discusses the econometrics of model selection, noting that general-to-specific modeling is the practical embodiment of reduction. This paper then summarizes fifty-seven articles key to the development of general-to-specific modeling.
    Keywords: Econometrics ; Econometric models
    Date: 2005
  11. By: Hui Guo; Robert Savickas
    Abstract: We find that the value-weighted idiosyncratic stock volatility and aggregate stock market volatility jointly exhibit strong predictive power for excess stock market returns. The stock market risk-return relation is found to be positive, as stipulated by the CAPM; however, idiosyncratic volatility is negatively related to future stock market returns. Also, idiosyncratic volatility appears to be a pervasive macrovariable, and its forecasting abilities are very similar to those of the consumption-wealth ratio proposed by Lettau and Ludvigson (2001).
    Keywords: Stock market ; Assets (Accounting) - Prices
    Date: 2005
  12. By: Massimo Guidolin; Allan Timmerman
    Abstract: We propose a four-state multivariate regime switching model to capture common latent factors driving short-term spot and forward rates in the US. For this class of models we develop a flexible approach to combine forecasts of future spot rates with forecasts from alternative sources such as time-series models or models capturing macroeconomic information. We find strong empirical evidence that accounting for both regimes in interest rate dynamics and combining forecasts from different models helps improve the out-of-sample forecasting performance for short-term interest rates in the US. Theoretical restrictions from the expectations hypothesis when imposed on the forecasting model are found to help only at long forecasting horizons.
    Keywords: Interest rates ; Forecasting
    Date: 2005
  13. By: Christiansen, Charlotte (Department of Accounting, Aarhus School of Business)
    Abstract: No abstract
    Keywords: Bivariate short-rate model; International short rates; Level-ARCH model; Regime switching
    Date: 2005–09–23
  14. By: E.Panopoulou (Department of Economics, National University of Ireland Maynooth and Department of Banking and Financial Management, University of Piraeus, Greece); T. Pantelidis (Department of Banking and Financial Management, University of Piraeus, Greece.)
    Abstract: We investigate the international information transmission between the U.S. and the rest of the G-7 countries using daily stock market return data covering the last 20 years. A pre-1995 and post- 1995 analysis reveals that the linkages between the markets have changed substantially in the more recent era, suggesting that national markets have become more interdependent. In the majority of the countries under scrutiny, we provide evidence of direct volatility spillovers, running mainly from the US and pointing to more rapid information transmission during the recent years. We further uncover the dynamics of the volatility spillovers between the international stock markets by means of a Volatility Impulse Response Analysis. Our findings, based on three historical shocks that have caused turbulence in the stock markets, suggest that the persistence of volatility shocks has increased substantially during the post-1995 period mainly due to increased persistence and interdependence in the volatility of all markets. As a result, volatility shocks in the international stock markets nowadays perpetuate for a significant longer period compared to the pre-1995 era.
    Keywords: volatility spillovers,volatility impulse response functions,stock market, ARCH-BEKK
    JEL: G15 C32
    Date: 2005–03
  15. By: Roy Cerqueti and Mauro Costantini
    Abstract: The aim of this paper is to provide a new perspective on the nonparametric co-integration analysis for integrated processes of the second order. Our analysis focus on a pair of random matrices related to such integrated process. Such matrices are constructed by introducing some weight functions. Under asymptotic conditions on such weights, convergence results in distribution are obtained. Therefore, a generalized eigenvalue problem is solved. Differential equations and stochastic calculus theory are used.
    Keywords: Co-integration, Nonparametric, Differential equations, Asymptotic properties.
    JEL: C14 C32 C65
    Date: 2005–09–09
  16. By: William Barnett (University of Kansas); Apostolos Serletis (University of Calgary); Demitre Serletis (University of Toronto)
    Abstract: This paper was produced for the El-Naschie Symposium on Nonlinear Dynamics in Shanghai in December 2005. In this paper we provide a review of the literature with respect to fluctuations in real systems and chaos. In doing so, we contrast the order and organization hypothesis of real systems with nonlinear chaotic dynamics and discuss some techniques used in distinguishing between stochastic and deterministic behavior. Moreover, we look at the issue of where and when the ideas of chaos could profitably be applied to real systems.
    Keywords: Chaos, Nonlinearity, Self-organized criticality
    JEL: C8 C14 C22 E37 E32
    Date: 2005–09–16

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