
on Econometric Time Series 
By:  Pablo Su\'arezGarc\'ia; David G\'omezUllate 
Abstract:  In this paper we will try to assess the multifractality displayed by the highfrequency returns of Madrid's Stock Exchange IBEX35 index. A Multifractal Detrended Fluctuation Analysis shows that this index has a wide singularity spectrum which is most likely caused by its long memory. Our findings also show that this longmemory can be considered as the superposition of a highfrequency component (related to the daily cycles of arrival of information to the market), over a slowlyvarying component that reverberates for long periods of time and which shows no apparent relation with human economic cycles. This later component is therefore postulated to be endogenous to market's dynamics and to be also the most probable source of some of the stylized facts commonly associated with financial time series. 
Date:  2013–06 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1306.0490&r=ets 
By:  Sylvain Corlay 
Abstract:  This paper is devoted to the application of Bsplines to volatility modeling, specifically the calibration of the leverage function in stochastic local volatility models and the parameterization of an arbitragefree implied volatility surface calibrated to sparse option data. We use an extension to the classical Bsplines obtained by including basis functions of infinite support. \par We first come back to the application of shapeconstrained Bsplines to the estimation of conditional expectations, not merely from a scatter plot but also with the given of the marginal distributions. An application is the Monte Carlo calibration of stochastic local volatility models by Markov projection. Then we present a new technique for the calibration of an implied volatility surface to sparse option data. We use a Bspline parameterization of the RadonNikodym derivative of the underlying's riskneutral probability density with respect to a roughly calibrated base model. We show that the method provides smooth arbitragefree implied volatility surfaces. Eventually, we propose a Galerkin method with Bspline finite elements to the solution of the P.D.E. satisfied by the Radon Nikodym derivative. 
Date:  2013–06 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1306.0995&r=ets 
By:  Francesco Bartolucci (University of Perugia); Federico Belotti (University of Rome "Tor Vergata"); Franco Peracchi (University of Rome "Tor Vergata" and EIEF) 
Abstract:  Recent literature on panel data has emphasized the importance of accounting for timevarying unobserved heterogeneity, which may stem either from timevarying omitted variables or macrolevel shocks that affect each individual unit differently. In this paper, we propose a computationally convenient test for the null hypothesis of timeinvariant individual effects. The proposed test is an application of Hausman (1978) specification test procedure and can be applied to generalized linear models for panel data, a wide class of models that includes the Gaussian linear model and a variety of nonlinear models typically employed for discrete or categorical outcomes. The basic idea is to compare fixed effects estimators defined as the maximand of full and pairwise conditional likelihood functions. Thus, the proposed approach requires no assumptions on the distribution of the individual effects and, most importantly, it does not require them to be independent of the covariates in the model. We investigate the finite sample properties of the test through a set of Monte Carlo experiments. Our results show that the test performs quite well, with small size distortions and good power properties. A health economics example based on data from the Health and Retirement Study is used to illustrate the proposed test. 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:eie:wpaper:1312&r=ets 
By:  Mardi Dungey; Jan P.A.M. Jacobs; Jing Tian; Simon van Norden 
Abstract:  A welldocumented property of the BeveridgeNelson trendcycle decomposition is the perfect negative correlation between trend and cycle innovations. We show how this may be consistent with a structural model where trend shocks enter the cycle, or cyclic shocks enter the trend and that identification restrictions are necessary to make this structural distinction. A reducedform unrestricted version such as that of Morley, Nelson and Zivot (2003) is compatible with either option, but cannot distinguish which is relevant. We discuss economic interpretations and implications using US real GDP data. 
Date:  2013 
URL:  http://d.repec.org/n?u=RePEc:fip:fedpwp:1322&r=ets 
By:  Maican, Florin G. (Department of Economics, School of Business, Economics and Law, Göteborg University); Sweeney, Richard J. (Georgetown University, Washington, D.C.) 
Abstract:  If the researcher tests each model in a battery at the a % significance level, the probability that at least one test rejects is generally larger than a %. For five unitroot models, this paper uses Monte Carlo simulation and the inclusionexclusion principle to show for a %=5% for each test, the probability that at least one test rejects is 16.2% rather than the upperbound of 25% from the Bonferroni inequality. It also gives estimated probabilities that any combination two, three, four or five models all reject.<p> 
Keywords:  Real Exchange Rates; Unit root; Monte Carlo; Break models 
JEL:  C15 C22 C32 C33 E31 F31 
Date:  2013–06–03 
URL:  http://d.repec.org/n?u=RePEc:hhs:gunwpe:0568&r=ets 
By:  Helmut Lütkepohl; Anna StaszewskaBystrova; Peter Winker; 
Abstract:  In vector autoregressive analysis confidence intervals for individual impulse responses are typically reported to indicate the sampling uncertainty in the estimation results. A range of methods are reviewed and a new proposal is made for constructing joint confidence bands, given a prespecifed coverage level, for the impulse responses at all horizons considered simultaneously. The methods are compared in a simulation experiment and recommendations for empirical work are provided. 
Keywords:  Vector autoregressive process, impulse responses, bootstrap, confidence band 
JEL:  C32 
Date:  2013–06 
URL:  http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2013031&r=ets 
By:  Heejoon Han; Dennis Kristensen (Institute for Fiscal Studies and University College London) 
Abstract:  This paper investigates the asymptotic properties of the Gaussian quasimaximumlikelihood estimators (QMLE's) of the GARCH model augmented by including an additional explanatory variable the socalled GARCHX model. The additional covariate is allowed to exhibit any degree of persistence as captured by its longmemory parameter dx; in particular, we allow for both stationary and nonstationary covariates. We show that the QMLE's of the parameters entereing the volatility equation are consistent and mixednormally distributed in large samples. The convergence rates and limiting distributions of the QMLE's depend on whether the regressor is stationary or not. However, standard inferential tools for the parameters are robust to the level of persistence of the regressor with tstatistics following standard Normal distributions in large sample irrespective of whether the regressor is stationary or not. 
Date:  2013–05 
URL:  http://d.repec.org/n?u=RePEc:ifs:cemmap:18/13&r=ets 
By:  David Hendry; Grayham E. Mizon 
Abstract:  Unpredictability arises from intrinsic stochastic variation, unexpected instances of outliers, and unanticipated extrinsic shifts of distributions. We analyze their properties, relationships, and different effects on the three arenas in the title, which suggests considering three associated information sets. The implications of unanticipated shifts for forecasting, economic analyses of efficient markets, conditional expectations, and intertemporal derivations are described. The potential success of generaltospecific model selection in tackling location shifts by impulseindicator saturation is contrasted with the major difficulties confronting forecasting. 
Keywords:  Unpredictability, 'Black Swans', distributional shifts, forecast failure, model selection, conditional expectations 
JEL:  C51 C22 
Date:  2013–03–14 
URL:  http://d.repec.org/n?u=RePEc:oxf:wpaper:2013w04&r=ets 