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Singapore Management University

2016

Research Collection School Of Economics

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Full-Text Articles in Social and Behavioral Sciences

Shrinkage Estimation Of Regression Models With Multiple Structural Changes, Junhai Qian, Liangjun Su Dec 2016

Shrinkage Estimation Of Regression Models With Multiple Structural Changes, Junhai Qian, Liangjun Su

Research Collection School Of Economics

In this paper, we consider the problem of determining the number of structural changes in multiple linear regression models via group fused Lasso. We show that with probability tending to one, our method can correctly determine the unknown number of breaks, and the estimated break dates are sufficiently close to the true break dates. We obtain estimates of the regression coefficients via post Lasso and establish the asymptotic distributions of the estimates of both break ratios and regression coefficients. We also propose and validate a data-driven method to determine the tuning parameter. Monte Carlo simulations demonstrate that the proposed method …

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Sharing Sequential Values In A Network, Ruben Juarez, Chiu Yu Ko, Jingyi Xue Dec 2016

Sharing Sequential Values In A Network, Ruben Juarez, Chiu Yu Ko, Jingyi Xue

Research Collection School Of Economics

Consider a sequential process where agents have individual values at every possible step. A planner is in charge of selecting steps and distributing the accumulated aggregate values among agents. We model this process by a directed network where each edge is associated with a vector of individual values. This model applies to several new and existing problems, e.g., developing a connected public facility and distributing total values received by surrounding districts; selecting a long-term production plan and sharing final profits among partners of a firm; choosing a machine schedule to serve different tasks and distributing total outputs among task owners. …

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Panel Data Models With Interactive Fixed Effects And Multiple Structural Breaks, Degui Li, Junhui Qian, Liangjun Su Dec 2016

Panel Data Models With Interactive Fixed Effects And Multiple Structural Breaks, Degui Li, Junhui Qian, Liangjun Su

Research Collection School Of Economics

In this article, we consider estimation of common structural breaks in panel data models with unobservable interactive fixed effects. We introduce a penalized principal component (PPC) estimation procedure with an adaptive group fused LASSO to detect the multiple structural breaks in the models. Under some mild conditions, we show that with probability approaching one the proposed method can correctly determine the unknown number of breaks and consistently estimate the common break dates. Furthermore, we estimate the regression coefficients through the post-LASSO method and establish the asymptotic distribution theory for the resulting estimators. The developed methodology and theory are applicable to …

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Weak Convergence To Stochastic Integrals For Econometric Applications, Hanying Liang, Peter C. B. Phillips, Hanchao Wang, Qiying Wang Dec 2016

Weak Convergence To Stochastic Integrals For Econometric Applications, Hanying Liang, Peter C. B. Phillips, Hanchao Wang, Qiying Wang

Research Collection School Of Economics

Limit theory involving stochastic integrals is now widespread in time series econometrics and relies on a few key results on functional weak convergence. In establishing such convergence, the literature commonly uses martingale and semimartingale structures. While these structures have wide relevance, many applications involve a cointegration framework where endogeneity and nonlinearity play major roles and complicate the limit theory. This paper explores weak convergence limit theory to stochastic integral functionals in such settings. We use a novel decomposition of sample covariances of functions of I (1) and I (0) time series that simplifies the asymptotics and our limit results for …

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Endogenous Quality Choice, Signaling, And Welfare, Gea M. Lee, Seung Han Yoo Dec 2016

Endogenous Quality Choice, Signaling, And Welfare, Gea M. Lee, Seung Han Yoo

Research Collection School Of Economics

We consider a model in which each worker endogenously selects his own type through aprivate investment decision and selects a public signal in the labor market. Signaling thencontributes to social welfare through its influence on the quality choice. We offer a rationalefor the argument that there are too many high-type workers from a welfare perspective,identifying circumstances under which separating equilibrium generates too many high-typeworkers while having to use the incentive-compatible signal and treat high-type workersdifferently in the market. The inefficiency can then be reduced in pooling equilibrium.

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Invitation Strategy For Cutting Edge Industries Through Mncs And Global Talents: The Case Of Singapore, Kim Song Tan Nov 2016

Invitation Strategy For Cutting Edge Industries Through Mncs And Global Talents: The Case Of Singapore, Kim Song Tan

Research Collection School Of Economics

Singapore presents an interesting case of how a country achieves dynamic economic development and innovation through the "invitation" strategy of a business hub. Despite being a small city-state with limited domestic market size and no meaningful hinterland or natural resources to speak of, Singapore has managed to transform its economy dramatically over the past 50 years by leveraging the strengths of other economies. Specifically, it has been able to attract (or "invite") various types of productive resources, including foreign capital, foreign technology and foreign workers (both skilled and unskilled) to make up for what it lacks. This has helped Singapore …

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Bias Correction And Refined Inferences For Fixed Effects Spatial Panel Data Models, Zhenlin Yang, Jihai Yu, Shew Fan Liu Nov 2016

Bias Correction And Refined Inferences For Fixed Effects Spatial Panel Data Models, Zhenlin Yang, Jihai Yu, Shew Fan Liu

Research Collection School Of Economics

This paper first presents simple methods for conducting up to third-order bias and variance corrections for the quasi maximum likelihood (QML) estimators of the spatial parameter(s) in the fixed effects spatial panel data (FE-SPD) models. Then, it shows how the bias and variance corrections lead to refined t-ratios for spatial effects and for covariate effects. The implementation of these corrections depends on the proposed bootstrap methods of which validity is established. Monte Carlo results reveal that (i) the QML estimators of the spatial parameters can be quite biased, (ii) a second-order bias correction effectively removes the bias, and (iii) the …

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Asymptotically Refined Score And Gof Tests For Inverse Gaussian Models, Anthony F. Desmond, Zhenlin Yang Nov 2016

Asymptotically Refined Score And Gof Tests For Inverse Gaussian Models, Anthony F. Desmond, Zhenlin Yang

Research Collection School Of Economics

The score test and the GOF test for the inverse Gaussian distribution, in particular the latter, are known to have large size distortion and hence unreliable power when referring to the asymptotic critical values. We show in this paper that with the appropriately bootstrapped critical values, these tests become second-order accurate, with size distortion being essentially eliminated and power more reliable. Two major generalizations of the score test are made: one is to allow the data to be right-censored, and the other is to allow the existence of covariate effects. A data mapping method is introduced for the bootstrap to …

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Shrinkage Estimation Of Covariance Matrix For Portfolio Choice With High Frequency Data, Cheng Liu, Ningning Xia, Jun Yu Nov 2016

Shrinkage Estimation Of Covariance Matrix For Portfolio Choice With High Frequency Data, Cheng Liu, Ningning Xia, Jun Yu

Research Collection School Of Economics

This paper examines the usefulness of high frequency data in estimating the covariancematrix for portfolio choice when the portfolio size is large. A computationally convenientnonlinear shrinkage estimator for the integrated covariance (ICV) matrix of financial as-sets is developed in two steps. The eigenvectors of the ICV are first constructed from adesigned time variation adjusted realized covariance matrix of noise-free log-returns of rel-atively low frequency data. Then the regularized eigenvalues of the ICV are estimated byquasi-maximum likelihood based on high frequency data. The estimator is always positivedefinite and its inverse is the estimator of the inverse of ICV. It minimizes the …

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Identifying Latent Structures In Panel Data, Liangjun Su, Zhentao Shi, Peter C. B. Phillips Nov 2016

Identifying Latent Structures In Panel Data, Liangjun Su, Zhentao Shi, Peter C. B. Phillips

Research Collection School Of Economics

This paper provides a novel mechanism for identifying and estimating latent group structures in panel data using penalized techniques. We consider both linear and nonlinear models where the regression coefficients are heterogeneous across groups but homogeneous within a group and the group membership is unknown. Two approaches are consideredpenalized profile likelihood (PPL) estimation for the general nonlinear models without endogenous regressors, and penalized GMM (PGMM) estimation for linear models with endogeneity. In both cases, we develop a new variant of Lasso called classifier-Lasso (C-Lasso) that serves to shrink individual coefficients to the unknown group-specific coefficients. C-Lasso achieves simultaneous classification and …

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Homogeneity Pursuit In Panel Data Models: Theory And Applications, Wuyi Wang, Peter C. B. Phillips, Liangjun Su Nov 2016

Homogeneity Pursuit In Panel Data Models: Theory And Applications, Wuyi Wang, Peter C. B. Phillips, Liangjun Su

Research Collection School Of Economics

This paper studies estimation of a panel data model with latent structures where individuals can be classified into different groups where slope parameters are homogeneous within the same group but heterogeneous across groups. To identify the unknown group structure of vector parameters, we design an algorithm called Panel-CARDS which is a systematic extension of the CARDS procedure proposed by Ke, Fan, and Wu (2015) in a cross section framework. The extension addresses the problem of comparing vector coefficients in a panel model for homogeneity and introduces a new concept of controlled classification of multidimensional quantities called the segmentation net. We …

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Semiparametric Single Index Panel Data Models With Interactive Fixed Effects: Theory And Practice, Guohua Feng, Bin Peng, Liangjun Su, Thomas Tao Yang Nov 2016

Semiparametric Single Index Panel Data Models With Interactive Fixed Effects: Theory And Practice, Guohua Feng, Bin Peng, Liangjun Su, Thomas Tao Yang

Research Collection School Of Economics

In this paper, we propose a single-index panel data model with unobserved multiple interactive fixed effects. This model has the advantages of being flexible and of being able to allow for common shocks and their heterogeneous impacts on cross sections, thus making it suitable for the investigation of many economic issues. We derive asymptotic theories for both the case where the link function is integrable and the case where the link function is non-integrable. Our Monte Carlo simulations show that our methodology works well for large N and T cases. In our empirical application, we illustrate our model by analyzing …

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New Skills At Work: Managing Skills Challenges In Asean-5, Kim Song Tan, James T. H. Tang Oct 2016

New Skills At Work: Managing Skills Challenges In Asean-5, Kim Song Tan, James T. H. Tang

Research Collection School Of Economics

The dynamic economies of Singapore, Malaysia, Thailand, Indonesia and the Philippines (ASEAN-5) boasts a growth rate of close to 5% a year despite the sluggish global economy. However, whether ASEAN-5 can grow to be significant players in the global economy will depend critically on their abilities to train workers with relevant job skills required by growth-driving industries. This challenge requires governments and employers to work together and develop coherent policies and targeted incentive structures for workers to acquire general and job-specific skills. The report Managing Skills Challenges in ASEAN-5 provides insights and recommendations on how the ASEAN-5 countries can respond …

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Robust Forecast Comparison, Sainan Jin, Valentina Corradi, Norman R. Swanson Oct 2016

Robust Forecast Comparison, Sainan Jin, Valentina Corradi, Norman R. Swanson

Research Collection School Of Economics

Forecast accuracy is typically measured in terms of a given loss function. However, as a consequence of the use of misspecified models in multiple model comparisons, relative forecast rankings are loss function dependent. In order to address this issue, a novel criterion for forecast evaluation that utilizes the entire distribution of forecast errors is introduced. In particular, we introduce the concepts of general-loss (GL) forecast superiority and convex-loss (CL) forecast superiority; and we develop tests for GL (CL) superiority that are based on an out-of-sample generalization of the tests introduced by Linton, Maasoumi, and Whang (2005, Review of Economic Studies …

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Need Based Aid From Selective Universities And The Achievement Gap Between Rich And Poor, Sunha Myong Oct 2016

Need Based Aid From Selective Universities And The Achievement Gap Between Rich And Poor, Sunha Myong

Research Collection School Of Economics

I study the role of need-based aid from selective universities in closing the achievement gap between rich and poor high school students. I focus on the incentive aspect of need-based aid that can change high school students’ effort choices. The impact of increasing need-based aid depends on the extent of borrowing constraints and how competition affects the relative performance of low- and high-income students. I develop a structural model of students’ learning, application, and admission processes, and estimate it with the Education Longitudinal Study of 2002, a nationally representative sample. I use a geographic variation in costs of attending selective …

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Tackling Technology Disruption In The Financial Sector: Are The Current Singapore Government Incentives And Labour Force Preparations Adequate?, Swee Liang Tan Oct 2016

Tackling Technology Disruption In The Financial Sector: Are The Current Singapore Government Incentives And Labour Force Preparations Adequate?, Swee Liang Tan

Research Collection School Of Economics

No abstract provided.

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Estimating The Volatility Occupation Time Via Regularized Laplace Inversion, Jia Li, Viktor Todorov, Tauchen Oct 2016

Estimating The Volatility Occupation Time Via Regularized Laplace Inversion, Jia Li, Viktor Todorov, Tauchen

Research Collection School Of Economics

We propose a consistent functional estimator for the occupation time of the spot variance of an asset price observed at discrete times on a finite interval with the mesh of the observation grid shrinking to zero. The asset price is modeled nonparametrically as a continuous-time Itô semimartingale with nonvanishing diffusion coefficient. The estimation procedure contains two steps. In the first step we estimate the Laplace transform of the volatility occupation time and, in the second step, we conduct a regularized Laplace inversion. Monte Carlo evidence suggests that the proposed estimator has good small-sample performance and in particular it is far …

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Catalyst Of Business Cycle Synchronization In East Asia, Hui-Ying. Sng, Liyu Dou, Pradumna Bickram. Rana Oct 2016

Catalyst Of Business Cycle Synchronization In East Asia, Hui-Ying. Sng, Liyu Dou, Pradumna Bickram. Rana

Research Collection School Of Economics

The essential question this paper seeks to answer is whether the business cycle co-movement in East Asia are fostered by internal bilateral trade within the region, specifically, intra-industry trade or by external forces like the influence of the world’s largest economy, namely, the United States. This paper examines the extent and robustness of the relationship between trade intensity and business cycle synchronization for nine East Asian countries in the period 1965–2008. Unlike previous studies which assume away the region’s concurrent connection with the rest of the world, in our regressions we control for both the US effect and the exchange …

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A Practical Test For Strict Exogeneity In Linear Panel Data Models With Fixed Effects, Liangjun Su, Yonghui Zhang, Jie Wei Oct 2016

A Practical Test For Strict Exogeneity In Linear Panel Data Models With Fixed Effects, Liangjun Su, Yonghui Zhang, Jie Wei

Research Collection School Of Economics

This paper provides a practical test for strict exogeneity in linear panel data models with fixed effects when the number of individuals N goes to infinity while the number of time periods T is fixed. The test is based on the supremum of a sequence of Wald test statistics. Under suitable conditions, we establish the asymptotic distribution of the test statistic and consistency of the test. A bootstrap procedure is proposed to improve the finite sample performance and the validity of the procedure is justified. We investigate the finite sample performance of the test via a small set of Monte …

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Climate Change And Vulnerability To Poverty: An Empirical Investigation In Rural Indonesia, Tomoki Fujii Sep 2016

Climate Change And Vulnerability To Poverty: An Empirical Investigation In Rural Indonesia, Tomoki Fujii

Research Collection School Of Economics

Scientists estimate that anthropogenic climate change leads to increased surface temperature, sea-level rise, more frequent and significant extreme weather and climate events, among others. In this study, we investigate how climate change can potentially change the vulnerability to poverty using a panel data set in Indonesia. We focus on the effect of drought and flood, two of the commonly observed disasters there. Our simulation results indicate that vulnerability to poverty may increase substantially as a result of climate change in Indonesia.

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Is Predicted Data A Viable Alternative To Real Data?, Tomoki Fujii, Roy Van Der Weide Sep 2016

Is Predicted Data A Viable Alternative To Real Data?, Tomoki Fujii, Roy Van Der Weide

Research Collection School Of Economics

It is costly to collect the household- andindividual-level data that underlies official estimates of poverty and health. Forthis reason, developing countries often do not have the budget to update their estimatesof poverty and health regularly, even though these estimates are most neededthere. One way to reduce the financial burden is to substitute some of the realdata with predicted data. An approach referred to as double sampling collectsthe expensive outcome variable for a sub-sample only while collecting thecovariates used for prediction for the full sample. The objective of this studyis to determine if this would indeed allow for realizing meaningful reductionsin …

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Concepts And Measurement Of Vulnerability To Poverty And Other Issues: A Review Of Literature, Tomoki Fujii Sep 2016

Concepts And Measurement Of Vulnerability To Poverty And Other Issues: A Review Of Literature, Tomoki Fujii

Research Collection School Of Economics

This paper reviews the growing body of literature on vulnerability. We first provide a survey of existing studies on the concepts and measurements of vulnerability to poverty by classifying them into welfarist, expected poverty, and axiomatic approaches. We then review a number of empirical studies on vulnerability to poverty in Asia and elsewhere. This review shows that poverty and vulnerability are related, but different, and that key determinants of vulnerability often include education and location. We also briefly review other areas of vulnerability analysis such as vulnerability to climate change and offer various policy implications arising from vulnerability analysis.

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Associationistic Luce Rule, Jiangtao Li, Rui Tang Sep 2016

Associationistic Luce Rule, Jiangtao Li, Rui Tang

Research Collection School Of Economics

We develop an extension of Luce’s random choice model that incorporates a role forthe association of alternatives. Each alternative is characterized by a salience value, aLuce value, and its associated alternatives. The salience value captures the alternative’sability to attract the decision maker’s attention, and the Luce value measures thealternative’s desirability. The decision maker is first attracted by some alternativeaccording to a salience-based Luce-type formula, and then chooses among its associatedalternatives according to another desirability-based Luce-type formula. While retainingthe simplicity of the Luce rule, the theory accommodates some well-known behavioralphenomena in individual choice, such as the attraction effect (violations of regularity),and …

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Asymptotic Theory For Estimating The Persistent Parameter In The Fractional Vasicek Model, Weilin Xiao, Jun Yu Sep 2016

Asymptotic Theory For Estimating The Persistent Parameter In The Fractional Vasicek Model, Weilin Xiao, Jun Yu

Research Collection School Of Economics

This paper develops the asymptotic theory for the least squares (LS) estimator of the persistent parameter in the fractional Vasicek model when a continuous record of observations is available. The fractional Vasicek model is assumed to be driven by the fractional Brownian motion with a known Hurst parameter greater than or equal to one half. It is shown that the asymptotic properties depend on the sign of the persistent parameter, corresponding to the stationary case, the explosive case and the null recurrent case. The strong consistency and the asymptotic distribution are obtained in all three cases.

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Is Predicted Data A Viable Alternative To Real Data?, Tomoki Fujii, Roy Van Der Weide Sep 2016

Is Predicted Data A Viable Alternative To Real Data?, Tomoki Fujii, Roy Van Der Weide

Research Collection School Of Economics

It is costly to collect the household- and individual-level data that underlies official estimates of poverty and health. For this reason, developing countries often do not have the budget to update their estimates of poverty and health regularly, even though these estimates are most needed there. One way to reduce the financial burden is to substitute some of the real data with predicted data. An approach referred to as double sampling collects the expensive outcome variable for a sub-sample only while collecting the covariates used for prediction for the full sample. The objective of this study is to determine if …

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Asset Pricing With Financial Bubble Risk, Ji Hyung Lee, Peter C. B. Phillips Sep 2016

Asset Pricing With Financial Bubble Risk, Ji Hyung Lee, Peter C. B. Phillips

Research Collection School Of Economics

This paper characterizes systematic risk stemming from the possible occurrence of price bubbles and measures the impact of this additional risk factor on asset prices. Historical stock market behavior and recent empirical experience have led economists and policy makers to acknowledge that price bubbles in financial markets do occur and need to be accounted for in risk analysis. New econometric tools for analyzing mildly explosive behavior (Phillips and Magdalinos, 2007; Phillips et al., 2011) have made it possible to detect the presence of bubbles in data and to date stamp their origination and collapse, providing empirical confirmation of such episodes …

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Modeling Speculative Bubbles With Diverse Investor Expectations, Peter C. B. Phillips Sep 2016

Modeling Speculative Bubbles With Diverse Investor Expectations, Peter C. B. Phillips

Research Collection School Of Economics

We construct a model of asset market exuberance, collapse and recovery using subjective investor-based rational expectations about the impact of fundamentals on the market price. Investors are assumed to have heterogeneous market sentiments, allowing them to be exuberant, cautious, or fundamentalist via boundary conditions that describe their respective views of the market impact of the same economic fundamentals. Equilibrium solution paths of the model take varying forms, depending on the parameter settings that reflect the importance of each type of market participant. This rational expectations model of asset pricing is shown to be consistent with a simple explosive continuous time …

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Asset Pricing With Financial Bubble Risk, Ji Hyung Lee, Peter C. B. Phillips Sep 2016

Asset Pricing With Financial Bubble Risk, Ji Hyung Lee, Peter C. B. Phillips

Research Collection School Of Economics

This paper characterizes systematic risk stemming from the possible occurrence of price bubbles and measures the impact of this additional risk factor on asset prices. Historical stock market behavior and recent empirical experience have led economists and policy makers to acknowledge that price bubbles in financial markets do occur and need to be accounted for in risk analysis. New econometric tools for analyzing mildly explosive behavior (Phillips and Magdalinos, 2007; Phillips et al., 2011) have made it possible to detect the presence of bubbles in data and to date stamp their origination and collapse, providing empirical confirmation of such episodes …

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Incense Burning During Pregnancy And Birth Weight And Head Circumference Among Term Births: The Taiwan Birth Cohort Study, Le-Yu Chen, Christine Ho Sep 2016

Incense Burning During Pregnancy And Birth Weight And Head Circumference Among Term Births: The Taiwan Birth Cohort Study, Le-Yu Chen, Christine Ho

Research Collection School Of Economics

Incense burning for rituals or religious purposes is an important tradition in many countries. However, incense smoke contains particulate matter and gas products such as carbon monoxide, sulfur and nitrogen dioxide, which are potentially harmful to health. We analyzed the relationship between prenatal incense burning and birth weight and head circumference at birth using the Taiwan Birth Cohort Study. We performed multivariate regression analysis on a sample of 15,773 Taiwanese babies born in 2005 and controlled extensively for factors that may be correlated with incense burning and birth outcomes. Prenatal incense burning environment was associated with lower birth weight and …

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Sequential Auctions With Descending Reserve Prices, Massimiliano Landi Aug 2016

Sequential Auctions With Descending Reserve Prices, Massimiliano Landi

Research Collection School Of Economics

No abstract provided.

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