Econometrics Commons^™

Bubbly Booms And Welfare, Feng Dong, Yang Jiao, Haoning Sun

Research Collection School Of Economics

We show the competing effects of a housing bubble on the real economy by developing a multi-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their housing, so a housing bubble helps firms obtain credit to finance their investment and expand production. On the other hand, a boom in the housing sector crowds out labor in the non-housing sector. We show that housing booms can reduce social welfare both in the steady state and in the transitional dynamics only when the production externalities in the non-housing sector are sufficiently large. We quantitatively evaluate our …

The Estimation Of Production Functions With Monetary Values, Jesus Felipe, John Mccombie, Aashish Mehta

Angelo King Institute for Economic and Business Studies (AKI)

For decades, the literature on the estimation of production functions has focused on the elimination of endogeneity biases through different estimation procedures to obtain the correct factor elasticities and other relevant parameters. Theoretical discussions of the problem correctly assume that production functions are relationships among physical inputs and output. However, in practice, they are most often estimated using deflated monetary values for output (value added or gross output) and capital. This introduces two additional problems—an errors-invariables problem, and a tendency to recover the factor shares in value added instead of their elasticities. The latter problem derives from the fact that …

Robust Testing For Explosive Behavior With Strongly Dependent Errors, Yui Lim Lui, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

A heteroskedasticity-autocorrelation robust (HAR) test statistic is proposed to test for the presence of explosive roots in financial or real asset prices when the equation errors are strongly dependent. Limit theory for the test statistic is developed and extended to heteroskedastic models. The new test has stable size properties unlike conventional test statistics that typically lead to size distortion and inconsistency in the presence of strongly dependent equation errors. The new procedure can be used to consistently time-stamp the origination and termination of an explosive episode under similar conditions of long memory errors. Simulations are conducted to assess the finite …

Optimal Nonparametric Range-Based Volatility Estimation, Tim Bollerslev, Jia Li, Qiyuan Li

Research Collection School Of Economics

We present a general framework for optimal nonparametric spot volatility estimation based on intraday range data, comprised of the first, highest, lowest, and last price over a given time-interval. We rely on a decision-theoretic approach together with a coupling-type argument to directly tailor the form of the nonparametric estimator to the specific volatility measure of interest and relevant loss function. The resulting new optimal estimators offer substantial efficiency gains compared to existing commonly used range-based procedures.

Disagreement In Market Index Options, Guilherme Salome, George Tauchen, Jia Li

Research Collection School Of Economics

We generate new evidence on disagreement among traders in the S&P 500 options market from high-frequency intraday price and volume data. Inference on disagreement is based on a model where investors observe public information but agree to disagree on its interpretation; disagreement among investors is captured by the volume–volatility elasticity. For options, there are two natural variables related to disagreement: moneyness and tenor, which we relate to disagreement about the distribution of the market index at different quantiles and times. The estimated volume–volatility elasticity equals unity for options near the money and close to expiration, which is consistent with the …

An Inquiry Concerning Japanese Yen Interest Rate Swap Yields, Tanweer Akram, Khawaja Mamun

WCBT Working Papers

This paper econometrically models Japanese yen (JPY)–denominated interest rate swap yields. It examines whether the short-term interest rate exerts an influence on the long-term JPY swap yield after controlling for several key macroeconomic variables, such as core inflation, the growth of industrial production, the percentage change in the equity price index, and the percentage change in the exchange rate. It also tests whether there are structural breaks in the dynamics of Japanese swap yields and related variables. The estimated econometric models show that the short-term interest rate exerts an important influence on the long-term swap yield in some periods but …

Bubble Testing Under Polynomial Trends, Xiaohu Wang, Jun Yu

Research Collection School Of Economics

This paper develops the asymptotic theory of the least squares estimator of the autoregressive (AR) coefficient in an AR(1) regression with intercept when data is generated from a polynomial trend model in different forms. It is shown that the commonly used right-tailed unit root tests tend to favor the explosive alternative. A new procedure, which implements the right-tailed unit root tests in an AR(2) regression, is proposed. It is shown that when the data generating process has a polynomial trend, the test statistics based on the new procedure cannot find evidence of explosiveness. Whereas, when the data generating process is …

Chinese Yuan Interest Rate Swap Yields, Tanweer Akram, Khawaja Mamun

WCBT Faculty Publications

This paper models the dynamics of Chinese yuan–denominated long-term interest rate swap yields. It shows that the short-term interest rate exerts a decisive influence on the long-term swap yield after controlling for various macrofinancial variables, such as core inflation, the growth of industrial production, the percent change in the equity price index, and the percentage change in the Chinese yuan exchange rate. The autoregressive distributed lag approach is applied to model the dynamics of the long-term swap yield. The findings reinforce and extend John Maynard Keynes’s conjecture that in advanced countries, as well as emerging market economies such as China, …

Bayesian Methods In Economics And Finance: Editor's Introduction, Jun Yu

Research Collection School Of Economics

Modern days, Bayesian methods have gained prominence in theoretical work and applications in economics and finance due to the rapid development of computational technologies and their ability to learn. The special issue intends to examine central aspects in Bayesian analysis and applications, including prior choices, model selection with massive data and latent variables, hypothesis testing, Bayesian learning. In total, this special issue contains ten papers, all subject to the Journal of Econometrics (JOE)’s normal refereeing process. Most of these papers came from a conference held at the ESSEC Singapore campus on 10 December 2018.

A Panel Clustering Approach To Analyzing Bubble Behavior, Yanbo Liu, Peter C. B. Phillips, Jun Yu

Research Collection School Of Economics

This study provides new mechanisms for identifying and estimating explosive bubbles in mixed-root panel autoregressions with a latent group structure. A post-clustering approach is employed that combines a recursive k-means clustering al-gorithm with panel-data test statistics for testing the presence of explosive roots in time series trajectories. Uniform consistency of the k-means clustering algorithm is established, showing that the post-clustering estimate is asymptotically equivalent to the oracle counterpart that uses the true group identities. Based on the estimated group membership, right-tailed self-normalized t-tests and coefficient-based J-tests, each with pivotal limit distributions, are introduced to detect the explosive roots. The usual …

Machine Learning For Stock Prediction Based On Fundamental Analysis, Yuxuan Huang, Luiz Fernando Capretz, Danny Ho

Electrical and Computer Engineering Publications

Application of machine learning for stock prediction is attracting a lot of attention in recent years. A large amount of research has been conducted in this area and multiple existing results have shown that machine learning methods could be successfully used toward stock predicting using stocks’ historical data. Most of these existing approaches have focused on short term prediction using stocks’ historical price and technical indicators. In this paper, we prepared 22 years’ worth of stock quarterly financial data and investigated three machine learning algorithms: Feed-forward Neural Network (FNN), Random Forest (RF) and Adaptive Neural Fuzzy Inference System (ANFIS) for …

Is Offense Worth More Than Defense In The National Basketball Association?, Justin Ehrlich, Joel Potter

Sport Management - All Scholarship

Motivated by the popular sports saying, “Offense sells tickets, defense wins championships,” we use Forbes revenue data to quantify whether offense really does sell more ‘tickets’ than defense in the National Basketball Association (NBA). Employing team offensive and defensive win shares as measures of offensive and defensive proficiency, we find offensively oriented teams generate the same amount of revenue as do defensively oriented teams, other things equal. Our results suggest that both profit-maximizing and win-maximizing teams should value offensively and defensively players equivalently (per unit). Thus, in an efficient free agent market, we would expect equilibrium player salaries for offensive …

A Hybrid Equity Release Plan For Retirement Financing, Koon Shing Kwong, Yiu Kuen Tse, Junxing Chay

Research Collection School Of Economics

There are two main equity release plans for retirement financing: reverse mortgage plan and home reversion plan. Both plans entitle the homeowners not only to release cash from their properties but also to allow them living there for life. In the lease buyback scheme (LBS) recently introduced in Singapore, the home owner sells the tail-end of the property lease to the government in exchange for a cash payment upfront. Unlike the two main equity release plans, the LBS only allows the owner to stay in the property for the front part of the lease but not for life.

In this …

Power And Statistical Significance In Securities Fraud Litigation, Jill E. Fisch, Jonah B. Gelbach

All Faculty Scholarship

Event studies, a half-century-old approach to measuring the effect of events on stock prices, are now ubiquitous in securities fraud litigation. In determining whether the event study demonstrates a price effect, expert witnesses typically base their conclusion on whether the results are statistically significant at the 95% confidence level, a threshold that is drawn from the academic literature. As a positive matter, this represents a disconnect with legal standards of proof. As a normative matter, it may reduce enforcement of fraud claims because litigation event studies typically involve quite low statistical power even for large-scale frauds.

This paper, written for …

Data Driven Value-At-Risk Forecasting Using A Svr-Garch-Kde Hybrid, Marius Lux, Wolfgang Karl Hardle, Stefan Lessmann

Sim Kee Boon Institute for Financial Economics

Appropriate risk management is crucial to ensure the competitiveness of financial institutions and the stability of the economy. One widely used financial risk measure is value-at-risk (VaR). VaR estimates based on linear and parametric models can lead to biased results or even underestimation of risk due to time varying volatility, skewness and leptokurtosis of financial return series. The paper proposes a nonlinear and nonparametric framework to forecast VaR that is motivated by overcoming the disadvantages of parametric models with a purely data driven approach. Mean and volatility are modeled via support vector regression (SVR) where the volatility model is motivated …

Shocks To Aggregate Demand And Aggregate Supply In The Midst Of Covid-19, Anna M. Gellerman

Publications and Research

COVID-19 sent shockwaves throughout the economy, changing the amounts of goods and services distributed and altering the demand. This article discusses the negative demand shock and adverse supply shock that the U.S. economy faced in 2020, and the policies that the government implemented to reverse these effects.

Comovement And Instability In Cryptocurrency Markets, Pierangelo De Pace, Jayant Rao

Pomona Economics

We analyze the extent of comovement between daily price returns of nine major cryptocurrencies during the first three main phases of their development, from April 2013 to November 2018. We assess its evolution using bivariate and multivariate modelling approaches, and detect pronounced time variation. Generally, comovement is initially low and positive, but increases between early 2017 and late 2018. We then adopt a right-tail version of the Augmented Dickey-Fuller unit root test to identify periods of mildly explosive behavior (statistical instability) in the Network Value to Transactions (NVT) ratio (a measure of the dollar value of cryptocurrency transaction activity relative …

Analyzing Competitive Balance In Professional Sport, Kevin Alwell

Honors Scholar Theses

In this paper we review several measures to statistically analyze competitive balance and report which leagues have a wider variance of performance amongst its competitors. Each league seeks to maintain high levels of parity, making matches and overall season more unpredictable and appealing to the general audience. Here we quantify competitive advantage across major sports leagues in numbers using several statistical methods in order for leagues to optimize their revenue.

Finance And Ideology: The Firm-Level Channels, Hao Liang, Rong Wang, Haikun Zhu

Research Collection Lee Kong Chian School Of Business

We provide firm-level evidence on how politicians’ ideologies affect economic outcomes and financial development by exploring a unique setting of ideological discontinuity in China from Maoism to Dengism around 1978. We find the ideological exposure during a politician’s early adulthood has an enduring effect on contemporary firm and city policies. Firms governed by “Mao’s mayors” have more stakeholder spending, lower pay inequality, and less internationalization than those governed by Deng’s. Further evidence suggests politicians’ ideology may affect economic activities through channels other than economic policy. Selection bias, endogenous matching and mayor age effect are unlikely to drive our results.

Forecasting Realized Volatility Using A Nonnegative Semiparametric Model, Anders Eriksson, Daniel P. A. Preve, Jun Yu

Research Collection School Of Economics

This paper introduces a parsimonious and yet flexible semiparametric model to forecastfinancial volatility. The new model extends a related linear nonnegative autoregressive modelpreviously used in the volatility literature by way of a power transformation. It is semiparametric inthe sense that the distributional and functional form of its error component is partially unspecified.The statistical properties of the model are discussed and a novel estimation method is proposed.Simulation studies validate the new method and suggest that it works reasonably well in finitesamples. The out-of-sample forecasting performance of the proposed model is evaluated against anumber of standard models, using data on S&P 500 …

Actuarial Modeling And Analysis Of The Hong Kong Life Annuity Scheme, Koon Shing Kwong, Wai-Sum Chan, Johnny Siu-Hang Li

Research Collection School Of Economics

The Hong Kong Mortgage Corporation (HKMC) Limited, which was established in March 1997 and is wholly owned by the government of the Hong Kong Special Administrative Region, has a major mission to develop and provide different financial retirement instruments to Hong Kong residents to help address the income poverty of retirees. In June 2017, HKMC Annuity Limited, a wholly-owned subsidiary of the HKMC was incorporated to implement a new life annuity scheme which would be launched by mid-2018 to cater for the needs of cash-rich Hong Kong old age residents. The objective of the scheme is to provide an additional …

Estimation Of Multivariate Asset Models With Jumps, Angela Loregian, Laura Ballotta, Gianluca Gianluca Fusai, Marcos Fabricio Perez

Business Faculty Publications

We propose a consistent and computationally efficient two-step methodology for the estimation of multidimensional non-Gaussian asset models built using Levy processes. The proposed framework allows for dependence between assets and different tail behaviors and jump structures for each asset. Our procedure can be applied to portfolios with a large number of assets as it is immune to estimation dimensionality problems. Simulations show good finite sample properties and significant efficiency gains. This method is especially relevant for risk management purposes such as, for example, the computation of portfolio Value at Risk and intra-horizon Value at Risk, as we show in detail …

Nonlinearities In The Real Exchange Rates: New Evidence From Developed And Developing Countries, Yamin S. Ahmad, Ming Chien Lo, Olena M. Staveley-O'Carroll

Economics Department Working Papers

This paper investigates nonlinearities in the dynamics of real exchange rates. We use Monte Carlo simulations to establish the size properties of the Teräsvirta-Anderson (1992) and the Teräsvirta (1994) test, when the dynamics of the real exchange rate is influenced by an exogenous process. In addition, we examine the modification proposed by Ahmad, Lo and Mykhaylova (2013; Journal of International Economics) to show that the modified nonlinearity test performs much better than the original in both Monte Carlo exercises and in the actual data on 1431 bilateral real exchange rate series. Finally, we investigate the dynamics of the real exchange …

Financial Bubble Implosion And Reverse Regression, Peter C. B. Phillips, Shu-Ping Shi

Research Collection School Of Economics

Expansion and collapse are two key features of a financial asset bubble. Bubble expansionmay be modeled using a mildly explosive process. Bubble implosion may take several differentforms depending on the nature of the collapse and therefore requires some flexibility in modeling.This paper first strengthens the theoretical foundation of the real time bubble monitoringstrategy proposed in Phillips, Shi and Yu (2015a,b, PSY) by developing analytics and studyingthe performance characteristics of the testing algorithm under alternative forms of bubbleimplosion which capture various return paths to market normalcy. Second, we propose a newreverse sample use of the PSY procedure for detecting crises and …

A Dynamic Network Perspective On The Latent Group Structure Of Cryptocurrencies, Li Guo, Yubo Tao, Wolfgang Karl Hardle

Research Collection School Of Economics

In this paper, we study the latent group structure in cryptocurrencies market by forming a dynamic return inferred network with coin attributions. We develop a dynamic covariate-assisted spectral clustering method to detect the communities in dynamic network framework and prove its uniform consistency along the horizons. Applying our new method, we show the return inferred network structure and coin attributions, including algorithms and proof types, jointly determine the market segmentation. Based on the network model, we propose a novel "hard-to-value" measure using the centrality scores. Further analysis reveals that the group with a lower centrality score exhibits stronger short-term return …

Financial Sector Development, Economic Growth And Stability, Wenjun Xue

FIU Electronic Theses and Dissertations

My dissertation investigates financial sector development, economic growth and stability through the analysis of Chinese and international evidence. My first chapter is the introduction. The second chapter investigates the effects of Chinese financial and fiscal policies on the Chinese economic recovery in the 2008 economic stimulus Plan, covering the period from the Great Recession to 2014. This chapter explores the effects of the increase in bank credit growth with significant strain of banking health on firm-level output, employment and investment. The results demonstrate that the increase in government expenditure due to the fiscal policies has the significant effects on the …

Volatility Spillovers And Linkages In Asian Stock Markets, Hwee Kwan Chow

Research Collection School Of Economics

Diebold–Yilmaz spillover indexes are computed for weekly return volatilities based on daily benchmark stock indexes of the US, the UK, and 10 Asian countries. We found (i) the strengthening of overall volatility spillovers is not a temporary surge but persisted after the crisis; (ii) the susceptibility of individual Asian stock markets to inward volatility transfers is linked to its degree of openness; and (iii) the Asian bourses are becoming more important emitters of financial shocks since the crisis. Rolling regressions on volatility linkages reveal the relative dominance of the US over the Japanese and Chinese bourses, and the level of …

Bubble Testing Under Deterministic Trends, Xiaohu Wang, Jun Yu

Research Collection School Of Economics

This paper develops the asymptotic theory of the ordinary least squares estimator of the autoregressive (AR) coefficient in various AR models, when data is generated from trend-stationary models in different forms. It is shown that, depending on how the autoregression is specified, the commonly used right-tailed unit root tests may tend to reject the null hypothesis of unit root in favor of the explosive alternative. A new procedure to implement the right-tailed unit root tests is proposed. It is shown that when the data generating process is trend-stationary, the test statistics based on the proposed procedure cannot find evidence of …

The Effects Of Commodity Disturbances On Open Economics, Richard Whitaker

FIU Electronic Theses and Dissertations

This dissertation investigates the effects of commodity disturbances on underlying economies. The analysis conducted in this dissertation comprises of two main themes. The first is investigating which commodity disturbances affect a country's GDP. I examine twenty three OECD countries and nineteen primary commodities in the energy, metal, food and timber sectors using a New Keynesian model that was estimated using the DSGE method. It was found the oil disturbances and to a lesser extend natural gas were the only commodity disturbances that affect a country's GDP. Also, it was found that a country's openness plays an important role in shaping …

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 …