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on Econometric Time Series |
| By: | Juan Carlos Escanciano (Indiana University Bloomington) |
| Abstract: | This article proposes a general class of joint and marginal diagnostic tests for parametric conditional mean and variance models of possibly nonlinear non-Markovian time series sequences. The use of joint and marginal tests is motivated from the fact that marginal tests for the conditional variance may lead misleading conclusions when the conditional mean is misspecified. The new tests are based on a generalized spectral approach and, contrary to existing procedures, they do not need to choose a lag order depending on the sample size or to smooth the data. Moreover, the proposed tests are robust to higher order dependence of unknown form, in particular to conditional skewness and kurtosis. It turns out that the asymptotic null distributions of the new tests depend on the data generating process, so a new bootstrap procedure is proposed and theoretically justified. A simulation study compares the finite sample performance of the proposed and competing tests and shows that our tests can play a valuable role in time series modeling. Finally, an application to the S&P 500 highlights the merits of our approach. |
| JEL: | C12 C14 C52 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2007009&r=ets |
| By: | Fabrizio Casalin |
| Abstract: | The purpose of this paper is twofold. First, by focusing on Single Equation and VECM techniques commonly employed to test for the Expectations Hypothesis of the Term Structure of interest rates (EHTS), it sheds light on the conditions - in terms of the different classes of stochastic processes of the spot and forward rates - that must hold for the EHTS to be valid. In doing so, the existing linkage between the two strands of literature is highlighted. Second, by using kalman filter and maximum likelihood, estimates of a permanent-transitory components model for spot and forward interest rates are carried out. The simple parametric model helps discern the relative contributions of both departures from rational expectation and time varying term premium to the invalidation of the EHTS. Departures from rational expectations turn out to have negligible impact on the rejection of the EHTS. Estimates of the time varying term premia for the short-end of the term structure spectrum are persistent and reasonable in magnitude, and exhibit sign fluctuations. |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:07/6&r=ets |
| By: | Cotter, John; Dowd, Kevin |
| Abstract: | Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their subjective risk-aversion. This paper examines spectral risk measures based on an exponential utility function, and finds that these risk measures have nice intuitive properties. It also discusses how they can be estimated using numerical quadrature methods, and how confidence intervals for them can be estimated using a parametric bootstrap. Illustrative results suggest that estimated exponential spectral risk measures obtained using such methods are quite precise in the presence of normally distributed losses. |
| JEL: | G10 G0 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3499&r=ets |
| By: | Cotter, John; Stevenson, Simon |
| Abstract: | One stylized feature of financial volatility impacting the modeling process is long memory. This paper examines long memory for alternative risk measures, observed absolute and squared returns for Daily REITs and compares the findings for a market equity index. The paper utilizes a variety of tests for long memory finding evidence that REIT volatility does display persistence. Trading volume is found to be strongly associated with long memory. The results do however suggest differences in the findings with regard to REITs in comparison to the broader equity sector. |
| JEL: | G0 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3500&r=ets |
| By: | Cotter, John; Dowd, Kevin |
| Abstract: | This paper examines the intra-day seasonality of transacted limit and market orders in the DEM/USD foreign exchange market. Empirical analysis of completed transactions data based on the Dealing 2000-2 electronic inter-dealer broking system indicates significant evidence of intraday seasonality in returns and return volatilities under usual market conditions. Moreover, analysis of realised tail outcomes supports seasonality for extraordinary market conditions across the trading day. |
| JEL: | G15 G1 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3502&r=ets |
| By: | Cotter, John; Dowd, Kevin |
| Abstract: | This paper presents non-parametric estimates of spectral risk measures applied to long and short positions in 5 prominent equity futures contracts. It also compares these to estimates of two popular alternative measures, the Value-at-Risk (VaR) and Expected Shortfall (ES). The spectral risk measures are conditioned on the coefficient of absolute risk aversion, and the latter two are conditioned on the confidence level. Our findings indicate that all risk measures increase dramatically and their estimators deteriorate in precision when their respective conditioning parameter increases. Results also suggest that estimates of spectral risk measures and their precision levels are of comparable orders of magnitude as those of more conventional risk measures. Running head: financial risk measures for futures positions. |
| JEL: | G10 G00 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3503&r=ets |