nep-ets New Economics Papers
on Econometric Time Series
Issue of 2023‒10‒23
four papers chosen by
Jaqueson K. Galimberti, Asian Development Bank

  1. Volatility or higher moments: Which is more important in return density forecasts of stochastic volatility model? By Li, Chenxing; Zhang, Zehua; Zhao, Ran
  2. Dynamic Time Warping for Lead-Lag Relationships in Lagged Multi-Factor Models By Yichi Zhang; Mihai Cucuringu; Alexander Y. Shestopaloff; Stefan Zohren
  3. Unified Inference for Dynamic Quantile Predictive Regression By Christis Katsouris
  4. Non-linear dimension reduction in factor-augmented vector autoregressions By Karin Klieber

  1. By: Li, Chenxing; Zhang, Zehua; Zhao, Ran
    Abstract: The stochastic volatility (SV) model has been one of the most popular models for latent stock return volatility. Extensions of the SV model focus on either improving volatility inference or modeling higher moments of the return distribution. This study investigates which extension can better improve return density forecasts. By examining various specifications with S&P 500 daily returns for nearly 20 years, we find that a more accurate capture of volatility dynamics with realized volatility and implied volatility is more important than modeling higher moments for a conventional SV model in terms of both density and tail forecasts. The accuracy of volatility estimation and forecasts should be the precondition for higher moments extensions.
    Keywords: Stochastic volatility, realized volatility, implied volatility, MCMC, density forecast
    JEL: C11 C22 C58 G17
    Date: 2023–09–03
  2. By: Yichi Zhang; Mihai Cucuringu; Alexander Y. Shestopaloff; Stefan Zohren
    Abstract: In multivariate time series systems, lead-lag relationships reveal dependencies between time series when they are shifted in time relative to each other. Uncovering such relationships is valuable in downstream tasks, such as control, forecasting, and clustering. By understanding the temporal dependencies between different time series, one can better comprehend the complex interactions and patterns within the system. We develop a cluster-driven methodology based on dynamic time warping for robust detection of lead-lag relationships in lagged multi-factor models. We establish connections to the multireference alignment problem for both the homogeneous and heterogeneous settings. Since multivariate time series are ubiquitous in a wide range of domains, we demonstrate that our algorithm is able to robustly detect lead-lag relationships in financial markets, which can be subsequently leveraged in trading strategies with significant economic benefits.
    Date: 2023–09
  3. By: Christis Katsouris
    Abstract: This paper develops unified asymptotic distribution theory for dynamic quantile predictive regressions which is useful when examining quantile predictability in stock returns under possible presence of nonstationarity.
    Date: 2023–09
  4. By: Karin Klieber
    Abstract: This paper introduces non-linear dimension reduction in factor-augmented vector autoregressions to analyze the effects of different economic shocks. I argue that controlling for non-linearities between a large-dimensional dataset and the latent factors is particularly useful during turbulent times of the business cycle. In simulations, I show that non-linear dimension reduction techniques yield good forecasting performance, especially when data is highly volatile. In an empirical application, I identify a monetary policy as well as an uncertainty shock excluding and including observations of the COVID-19 pandemic. Those two applications suggest that the non-linear FAVAR approaches are capable of dealing with the large outliers caused by the COVID-19 pandemic and yield reliable results in both scenarios.
    Date: 2023–09

This nep-ets issue is ©2023 by Jaqueson K. Galimberti. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.