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Full-Text Articles in Statistics and Probability
Noise Reduced Realized Volatility: A Kalman Filter Approach, Douglas Steigerwald, John Owens
Noise Reduced Realized Volatility: A Kalman Filter Approach, Douglas Steigerwald, John Owens
Douglas G. Steigerwald
How should one remove microstructure noise from high-frequency asset prices? We show how to use the Kalman filter to efficiently remove microstructure noise.
Identifying A Source Of Financial Volatility, Douglas G. Steigerwald, Richard Vagnoni
Identifying A Source Of Financial Volatility, Douglas G. Steigerwald, Richard Vagnoni
Douglas G. Steigerwald
How should one combine stock and option markets in models of trade and asset price volatility? We address this question, paying particular attention to the identification of parameters of interest.
Inferring Information Frequency And Quality, Douglas G. Steigerwald, John Owens
Inferring Information Frequency And Quality, Douglas G. Steigerwald, John Owens
Douglas G. Steigerwald
We develop a microstructure model that, in contrast to previous models, allows one to estimate the frequency and quality of private information. In addition, the model produces stationary asset price and trading volume series. We find evidence that information arrives frequently within a day and that this information is of high quality. The frequent arrival of information, while in contrast to previous microstructure model estimates, accords with nonmodel-based estimates and the related literature testing the mixture-of-distributions hypothesis. To determine if the estimates are correctly reflecting the arrival of latent information, we estimate the parameters over half-hour intervals within the day. …
Optimal Policies For Investment With Time-Varying Return Distributions, Douglas Steigerwald, Doncho Donchev, Svetlozar Rachev
Optimal Policies For Investment With Time-Varying Return Distributions, Douglas Steigerwald, Doncho Donchev, Svetlozar Rachev
Douglas G. Steigerwald
We develop a model in which investors must learn the distribution of asset returns over time. The process of learning is made more difficult by the fact that the distributions are not constant through time. We consider risk-neutral investors who have quadratic utility and are selecting between two risky assets. We determine the time at which it is optimal to update the distribution estimate and, hence, alter portfolio weights. Our results deliver an optimal policy for asset allocation, that is, the sequence of time intervals at which it is optimal to switch between assets, based on stochastic optimal control theory. …
Adaptive Testing In Arch Models, Douglas G. Steigerwald, Oliver Linton
Adaptive Testing In Arch Models, Douglas G. Steigerwald, Oliver Linton
Douglas G. Steigerwald
Specification tests for conditional heteroskedasticity that are derived under the assumption that the density of the innovation is Gaussian may not be powerful in light of the recent empirical results that the density is not Gaussian. We obtain specification tests for conditional heteroskedasticity under the assumption that the innovation density is a member of a general family of densities. Our test statistics maximize asymptotic local power and weighted average power criteria for the general family of densities. We establish both first-order and second-order theory for our procedures. Simulations indicate that asymptotic power gains are achievable in finite samples.
Asymptotic Bias For Quasi-Maximum Likelihood Estimators In Models With Conditional Heteroskedasticity, Douglas G. Steigerwald, Whitney Newey
Asymptotic Bias For Quasi-Maximum Likelihood Estimators In Models With Conditional Heteroskedasticity, Douglas G. Steigerwald, Whitney Newey
Douglas G. Steigerwald
Virtually all applications of time-varying conditional variance models use a quasi-maximum likelihood estimator (QMLE). Consistency of a QMLE requires an identification condition that the quasi-log-likelihood have a unique maximum at the true conditional mean and relative scale parameters. We show that the identification condition holds for a non-Gaussian QMLE if the conditional mean is identically zero or if a symmetry condition is satisfied. Without symmetry an additional parameter, for the location of the innovation density, must be added for consistency. We calculate the efficiency loss from adding such a parameter under symmetry, when the parameter is not needed. We also …
Testing For Absolute Purchaing Power Parity, Douglas G. Steigerwald, Collin Crownover, John Pippenger
Testing For Absolute Purchaing Power Parity, Douglas G. Steigerwald, Collin Crownover, John Pippenger
Douglas G. Steigerwald
Purchasing power parity (PPP) is an equilibrium condition equating the nominal exchange rate between two countries with the relative price of an identical bundle of goods in each country. Previous time-series researchers use price indicies to study PPP, so they study relative PPP. We use new data that measures price levels, so we test absolute PPP. Price levels provide a test of absolute PPP because, unlike price indicies, do not contain a base period in which the nominal exchange rate equals the price ratio by construction. We find support for absolute PPP.
Purchasing Power Parity, Unit Roots And Dynamic Structure, Douglas G. Steigerwald
Purchasing Power Parity, Unit Roots And Dynamic Structure, Douglas G. Steigerwald
Douglas G. Steigerwald
Recent studies of puchasing power parity (PPP) account for the possible presence of unit roots in nominal exchange rates and relative price indicies by applying standard unit-root tests to real exchange rates, which are ratios of nominal exchange rates and relative price indicies. These studies occasionally find evidence of PPP but, as a whole, the evidence is not definitive. Standard unit-root tests impose a restrictive dynamic structure between nominal exchange rates and relative price indicies. I specify and estimate a generalized dynamic structure. I reject the dynamic restrictions implicit in standard unit-root tests of PPP, and find stronger evidence of …
Volatility, Douglas G. Steigerwald, Stephen Leroy
Volatility, Douglas G. Steigerwald, Stephen Leroy
Douglas G. Steigerwald
How should one determine if capital markets are efficient? We examine the statistical foundations of tests of efficiency.