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Articles 1 - 30 of 111
Full-Text Articles in Econometrics
The Conservatism Principle And Asymmetric Preferences Over Reporting Errors, Jivas Chakravarthy, Timothy W. Shields
The Conservatism Principle And Asymmetric Preferences Over Reporting Errors, Jivas Chakravarthy, Timothy W. Shields
ESI Working Papers
At present, accounting conservatism is generally viewed from a measurement or reporting perspective. In contrast, we consider whether it relates to a moral rule of conduct. Conservatism has been described as deriving from a preference for reporting errors to be in the direction of understatement rather than overstatement. We experimentally pair Reporters who provide information with Users who rely on the information. We posit that under misaligned incentives that motivate aggressive reporting, Users view an aggressive report as reflecting Reporters’ exploitative intent and expect that a social norm prohibiting aggressive reporting applies. We predict that Users use noisy reporting errors …
A Capital Asset Pricing Model With Idiosyncratic Risk And The Sources Of The Beta Anomaly, Mark Schneider, Manuel A. Nunez
A Capital Asset Pricing Model With Idiosyncratic Risk And The Sources Of The Beta Anomaly, Mark Schneider, Manuel A. Nunez
ESI Working Papers
We introduce a generalization of the classical capital asset pricing model in which market uncertainty, market sentiment, and forms of idiosyncratic volatility and idiosyncratic skewness are priced in equilibrium. We derive two versions of the model, one based on a representative agent who cares about three criteria (risk, robustness, and expected returns), and the other with a microfoundation based on three types of investors (speculators, hedgers, and arbitrageurs). We apply the resulting capital asset pricing model with idiosyncratic risk (IR-CAPM) to provide a new theoretical account of the beta anomaly, one of the most fundamental and widely studied empirical limitations …
Financial Reporting And Moral Sentiments, Radhika Lunawat, Timothy W. Shields, Gregory B. Waymire
Financial Reporting And Moral Sentiments, Radhika Lunawat, Timothy W. Shields, Gregory B. Waymire
ESI Working Papers
Dating back at least to Adam Smith (1790), philosophers and researchers expect that people will behave differently when they know their actions are observable to others. We hypothesize that financial reporting reveals managers’ actions and leads them to take different actions that are better aligned with investor interests. We posit that the reason why is the activation of our internal mental self-evaluation that Smith refers to as an “Impartial Spectator.” We test this hypothesis with an experiment in which we manipulate the availability of a financial report that makes managerial actions transparent. Our evidence shows that financial reporting leads a …
The Chow Test With Time Series-Cross Section Data, James K. Binkley, Jeffrey Young
The Chow Test With Time Series-Cross Section Data, James K. Binkley, Jeffrey Young
Faculty & Staff Research and Creative Activity
The Chow test is a standard method to test for differences in regression response across groups. In some cases, the groups being tested are composed of a time series of cross sections. If the individual units within the groups have systematic differences, the Chow test is compromised: individual and group effects become confounded. This can cause rejections in the absence of the group effect of interest. We illustrate the problem with Monte Carlo analyses, and propose an alternative bootstrap-like testing procedure that helps eliminate excessive Type I errors.
Rhode Island Current Conditions Index -- December 2020, Leonard Lardaro
Rhode Island Current Conditions Index -- December 2020, Leonard Lardaro
The Rhode Island Current Conditions Index
No abstract provided.
Asymptotic Properties Of Least Squares Estimator In Local To Unity Processes With Fractional Gaussian Noises, Xiaohu Wang, Weilin Xiao, Jun Yu
Asymptotic Properties Of Least Squares Estimator In Local To Unity Processes With Fractional Gaussian Noises, Xiaohu Wang, Weilin Xiao, Jun Yu
Research Collection School Of Economics
This paper derives asymptotic properties of the least squares estimator of the autoregressive parameter in local to unity processes with errors being fractional Gaussian noises with the Hurst parameter H. It is shown that the estimator is consistent when H ∈ (0, 1). Moreover, the rate of convergence is n when H ∈ [0.5, 1). The rate of convergence is n2H when H ∈ (0, 0.5). Furthermore, the limit distribution of the centered least squares estimator depends on H. When H = 0.5, the limit distribution is the same as that obtained in Phillips (1987a) for the local to …
Quasi-Bayesian Inference For Production Frontiers, Xiaobin Liu, Thomas Tao Yang, Yichong Zhang
Quasi-Bayesian Inference For Production Frontiers, Xiaobin Liu, Thomas Tao Yang, Yichong Zhang
Research Collection School Of Economics
We propose a quasi-Bayesian method to conduct inference for the production frontier. This approach combines multiple first-stage extreme quantile estimates by the quasi-Bayesian method to produce the point estimate and confidence interval for the production frontier. We show the asymptotic properties of the proposed estimator and the validity of the inference procedure. The finite sample performance of our method is illustrated through simulations and an empirical application.
Point Optimal Testing With Roots That Are Functionally Local To Unity, Anna Bykhovskaya, Peter C. B. Phillips
Point Optimal Testing With Roots That Are Functionally Local To Unity, Anna Bykhovskaya, Peter C. B. Phillips
Research Collection School Of Economics
Limit theory for regressions involving local to unit roots (LURs) is now used extensively in time series econometric work, establishing power properties for unit root and cointegration tests, assisting the construction of uniform confidence intervals for autoregressive coefficients, and enabling the development of methods robust to departures from unit roots. The present paper shows how to generalize LUR asymptotics to cases where the localized departure from unity is a time varying function rather than a constant. Such a functional local unit root (FLUR) model has much greater generality and encompasses many cases of additional interest that appear in practical work, …
Testing For Structural Changes In Factor Models Via A Nonparametric Regression, Liangjun Su, Xia Wang
Testing For Structural Changes In Factor Models Via A Nonparametric Regression, Liangjun Su, Xia Wang
Research Collection School Of Economics
We propose a model-free test for structural changes in factor models. The basic idea is to regress the data on commonly estimated factors by local smoothing and compare the fitted values of time-varying factor loadings with those of time-invariant factor loadings estimated via principal component analysis. By construction, the test is designed to be powerful against both smooth structural changes and sudden structural breaks with a possibly unknown number of breaks and unknown break dates in the factor loadings. No restrictions on the form of alternatives or trimming of boundary regions near the beginning or end of the sample period …
Diagnostic Tests For Homoskedasticity In Spatial Cross-Sectional Or Panel Models, Badi K. Baltagi, Alain Pirotte, Zhenlin Yang
Diagnostic Tests For Homoskedasticity In Spatial Cross-Sectional Or Panel Models, Badi K. Baltagi, Alain Pirotte, Zhenlin Yang
Research Collection School Of Economics
We propose an Adjusted Quasi-Score (AQS) method for constructing tests for homoskedasticity in spatial econometric models. We first obtain an AQS function by adjusting the score-type function from the given model to achieve unbiasedness, and then develop an Outer-Product-of-Martingale-Difference (OPMD) estimate of its variance. In standard problems where a genuine (quasi) score vector is available, the AQS-OPMD method leads to finite sample improved tests over the usual methods. More importantly in non-standard problems where a genuine (quasi) score is not available and the usual methods fail, the proposed AQS-OPMD method provides feasible solutions. The AQS tests are formally derived and …
Causal Change Detection In Possibly Integrated Systems: Revisiting The Money-Income Relationship, Shuping Shi, Stan Hurn, Peter C. B. Phillips
Causal Change Detection In Possibly Integrated Systems: Revisiting The Money-Income Relationship, Shuping Shi, Stan Hurn, Peter C. B. Phillips
Research Collection School Of Economics
This paper re-examines changes in the causal link between money and income in the United States over the past half century (1959-2014). Three methods for the data-driven discovery of change points in causal relationships are proposed, all of which can be implemented without prior detrending of the data. These methods are a forward recursive algorithm, a rolling window algorithm, and a recursive evolving algorithm all of which utilize subsample tests of Granger causality within a lagaugmented vector autoregressive framework. The limit distributions for these subsample Wald tests are provided. Bootstrap methods are developed to control family-wise size in the implementation …
Speed Traps: Algorithmic Trader Performance Under Alternative Market Structures, Yan Peng, Jason Shachat, Lijia Wei, S. Sarah Zhang
Speed Traps: Algorithmic Trader Performance Under Alternative Market Structures, Yan Peng, Jason Shachat, Lijia Wei, S. Sarah Zhang
ESI Working Papers
Using laboratory experiments, we illustrate that trading algorithms that prioritize low latency pose certain pitfalls in a variety of market structures and configurations. In hybrid double auctions markets with human traders and trading agents, we find superior performance of trading agents to human traders in balanced markets with the same number of human and Zero Intelligence Plus (ZIP) buyers and sellers only, thus providing a partial replication of Das et al. (2001). However, in unbalanced markets and extreme market structures, such as monopolies and duopolies, fast ZIP agents fall into a speed trap and both human participants and slow ZIP …
A Theory Of Cultural Revivals, Murat Iyigun, Jared Rubin, Avner Seror
A Theory Of Cultural Revivals, Murat Iyigun, Jared Rubin, Avner Seror
ESI Working Papers
Why do some societies have political institutions that support productively inefficient outcomes? And why does the political power of elites vested in these outcomes often grow over time, even when they are unable to block more efficient modes of production? We propose an explanation centered on the interplay between political and cultural change. We build a model in which cultural values are transmitted inter-generationally. The cultural composition of society, in turn, determines public good provision as well as the future political power of elites from different cultural groups. We characterize the equilibrium of the model and provide sufficient conditions for …
Rhode Island Current Conditions Index -- November 2020, Leonard Lardaro
Rhode Island Current Conditions Index -- November 2020, Leonard Lardaro
The Rhode Island Current Conditions Index
No abstract provided.
Data Driven Value-At-Risk Forecasting Using A Svr-Garch-Kde Hybrid, Marius Lux, Wolfgang Karl Hardle, Stefan Lessmann
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 …
Uniform Nonparametric Inference For Time Series, Jia Li, Zhipeng Liao
Uniform Nonparametric Inference For Time Series, Jia Li, Zhipeng Liao
Research Collection School Of Economics
This paper provides the first result for the uniform inference based on nonparametric series estimators in a general time-series setting. We develop a strong approximation theory for sample averages of mixingales with dimensions growing with the sample size. We use this result to justify the asymptotic validity of a uniform confidence band for series estimators and show that it can also be used to conduct nonparametric specification test for conditional moment restrictions. New results on the validity of heteroskedasticity and autocorrelation consistent (HAC) estimators with increasing dimension are established for making feasible inference. An empirical application on the unemployment volatility …
Persistent And Rough Volatility, Xiaobin Liu, Shuping Shi, Jun Yu
Persistent And Rough Volatility, Xiaobin Liu, Shuping Shi, Jun Yu
Research Collection School Of Economics
This paper contributes to an ongoing debate on volatility dynamics. We introduce a discrete-time fractional stochastic volatility (FSV) model based on the fractional Gaussian noise. The new model has the same limit as the fractional integrated stochastic volatility (FISV) model under the in-fill asymptotic scheme. We study the theoretical properties of both models and introduce a memory signature plot for a model-free initial assessment. A simulated maximum likelihood (SML) method, which maximizes the time-domain log-likelihoods obtained by the importance sampling technique, is employed to estimate the model parameters. Simulation studies suggest that the SML method can accurately estimate both models. …
Commodities Are Not Industries! A Value Chain Example, Randall W. Jackson, Patricio Aroca
Commodities Are Not Industries! A Value Chain Example, Randall W. Jackson, Patricio Aroca
Regional Research Institute Working Papers
Leontief and Stone both received Nobel Prizes in Economics for development and extension of input-output (IO) analysis, a framework that has gained little traction in mainstream U.S. economics. Although IO modeling has gained renewed focus in several problem domains, many contemporary economists eschew Stone's enhancements, resulting in inconsistent analytics, even in top economics journals. In this paper, we use an increasingly common approach to value chain analysis as one example that demonstrates such conceptual misunderstandings and by presenting properly formulated alternatives, we demonstrate the extent of the consequences of neglecting the Stone enhancements and important role of reproducing results.
Rhode Island Current Conditions Index -- October 2020, Leonard Lardaro
Rhode Island Current Conditions Index -- October 2020, Leonard Lardaro
The Rhode Island Current Conditions Index
No abstract provided.
Forecasting Large Covariance Matrix With High-Frequency Data: A Factor Approach For The Correlation Matrix, Yingjie Dong, Yiu Kuen Tse
Forecasting Large Covariance Matrix With High-Frequency Data: A Factor Approach For The Correlation Matrix, Yingjie Dong, Yiu Kuen Tse
Research Collection School Of Economics
We apply the factor approach to the correlation matrix to forecast large covariance matrix of asset returns using high-frequency data, using the principal component method to model the underlying latent factors of the correlation matrix. The realized variances are separately forecasted using the Heterogeneous Autoregressive model. The forecasted variances and correlations are then combined to forecast large covariance matrix. Our proposed method is found to perform better in reporting smaller forecast errors than some selected competitors. Empirical application to a portfolio of 100 NYSE and NASDAQ stocks shows that our method provides lower out-of-sample realized variance in selecting global minimum …
Unconditional Quantile Regression With High-Dimensional Data, Yuya Sasaki, Takuya Ura, Yichong Zhang
Unconditional Quantile Regression With High-Dimensional Data, Yuya Sasaki, Takuya Ura, Yichong Zhang
Research Collection School Of Economics
Credible counterfactual analysis requires high-dimensional controls. This paper considers estimation and inference for heterogeneous counterfactual effects with high-dimensional data. We propose a novel doubly robust score for double/debiased estimation and inference for the unconditional quantile regression (Firpo, Fortin, and Lemieux, 2009) as a measure of heterogeneous counterfactual marginal effects. We propose a multiplier bootstrap inference for the Lasso double/debiased estimator, and develop asymptotic theories to guarantee that the bootstrap works. Simulation studies support our theories. Applying the proposed method to Job Corps survey data, we find that i) marginal effects of counterfactually extending the duration of the exposure to the …
Consistent Regional Commodity-By-Industry Input-Output Accounts, Randall Jackson, Péter Járosi
Consistent Regional Commodity-By-Industry Input-Output Accounts, Randall Jackson, Péter Járosi
Regional Research Institute Working Papers
A long-standing regional science problem domain focuses on the identification of structural economic change. One of several approaches relies on the use of historical final demand series and a comparison of observed industry output to an estimate of what output would have been were economic structure static. However, these methods were first developed before the introduction of today’s commonly used commodity-by-industry (CxI)input-output (IO) accounting frameworks, and before the application of these methods to regional economies. Correctly formulating the supporting accounting structures for these analyses is essential, but can be challenging even for experienced an- alysts. Related textbook and journal articles …
An Experimental Investigation Of Health Insurance Policy And Behavior, J. Dustin Tracy, Hillard Kaplan, Kevin A. James, Stephen Rassenti
An Experimental Investigation Of Health Insurance Policy And Behavior, J. Dustin Tracy, Hillard Kaplan, Kevin A. James, Stephen Rassenti
ESI Working Papers
We introduce a new experimental approach to measuring the effects of health insurance policy alternatives on behavior and health outcomes over the life course. Cash-motivated subjects are placed in a virtual environment where they earn income and allocate it across multi-period lives. We compare behavior across age, income and insurance plans—one priced according to an individual’s expected cost and the other uniformly priced through employer-implemented cost sharing. We find that 1) subjects in the employer-implemented plan purchased insurance at higher rates; 2) the employer-based plan reduced differences due to income and age; 3) subjects in the actuarial plan engaged in …
An Elementary Humanomics Approach To Boundedly Rational Quadratic Models, Michael J. Campbell, Vernon L. Smith
An Elementary Humanomics Approach To Boundedly Rational Quadratic Models, Michael J. Campbell, Vernon L. Smith
ESI Working Papers
We take a refreshing new look at boundedly rational quadratic models in economics using some elementary modeling of the principles put forward in the book Humanomics by Vernon L. Smith and Bart J. Wilson. A simple model is introduced built on the fundamental Humanomics principles of gratitude/resentment felt and the corresponding action responses of reward /punishment in the form of higher/lower payoff transfers. There are two timescales: one for strictly self-interested action, as in economic equilibrium, and another governed by feelings of gratitude/resentment. One of three timescale scenarios is investigated: one where gratitude /resentment changes much more slowly than economic …
Intertemporal Choice Experiments And Large-Stakes Behavior, Diego Aycinena, Szabolcs Blazsek, Lucas Rentschler, Charles Sprenger
Intertemporal Choice Experiments And Large-Stakes Behavior, Diego Aycinena, Szabolcs Blazsek, Lucas Rentschler, Charles Sprenger
ESI Working Papers
Intertemporal choice experiments are increasingly implemented to make inference about discounting and marginal utility, yet little is known about the predictive power of resulting measures. This project links standard experimental choices to a decision on the desire to smooth a large-stakes payment | around 10% of annual income | through time. In a sample of around 400 Guatemalan Conditional Cash Transfer recipients, we find that preferences over large-stakes payment plans are closely predicted by experimental measures of patience and diminishing marginal utility. These represent the first findings in the literature on the predictive content of such experimentally elicited measures of …
Rhode Island Current Conditions Index -- September 2020, Leonard Lardaro
Rhode Island Current Conditions Index -- September 2020, Leonard Lardaro
The Rhode Island Current Conditions Index
No abstract provided.
Universal Minimum Wage Is Not Suitable For Singapore, Zhengxiao Wu
Universal Minimum Wage Is Not Suitable For Singapore, Zhengxiao Wu
Research Collection School Of Economics
In a commentary, SMU Senior Lecturer of Statistics Wu Zhengxiao examined the concept of a universal minimum wage, and discussed how it is not suitable for Singapore.
Maximum Likelihood Estimation For The Fractional Vasicek Model, Katsuto Tanaka, Weilin Xiao, Jun Yu
Maximum Likelihood Estimation For The Fractional Vasicek Model, Katsuto Tanaka, Weilin Xiao, Jun Yu
Research Collection School Of Economics
This paper estimates the drift parameters in the fractional Vasicek model from a continuous record of observations via maximum likelihood (ML). The asymptotic theory for the ML estimates (MLE) is established in the stationary case, the explosive case, and the boundary case for the entire range of the Hurst parameter, providing a complete treatment of asymptotic analysis. It is shown that changing the sign of the persistence parameter changes the asymptotic theory for the MLE, including the rate of convergence and the limiting distribution. It is also found that the asymptotic theory depends on the value of the Hurst parameter.
Uniform Nonparametric Inference For Time Series Using Stata, Jia Li, Zhipeng Liao, Mengsi Gao
Uniform Nonparametric Inference For Time Series Using Stata, Jia Li, Zhipeng Liao, Mengsi Gao
Research Collection School Of Economics
In this article, we introduce a command, tssreg, that conducts nonparametric series estimation and uniform inference for time-series data, including the case with independent data as a special case. This command can be used to nonparametrically estimate the conditional expectation function and the uniform confidence band at a user-specified confidence level, based on an econometric theory that accommodates general time-series dependence. The uniform inference tool can also be used to perform nonparametric specification tests for conditional moment restrictions commonly seen in dynamic equilibrium models.
Estimation Of Conditional Average Treatment Effects With High-Dimensional Data, Qingliang Fan, Yu-Chin Hsu, Robert P. Lieli, Yichong Zhang
Estimation Of Conditional Average Treatment Effects With High-Dimensional Data, Qingliang Fan, Yu-Chin Hsu, Robert P. Lieli, Yichong Zhang
Research Collection School Of Economics
Given the unconfoundedness assumption, we propose new nonparametric estimators for the reduced dimensional conditional average treatment effect (CATE) function. In the first stage, the nuisance functions necessary for identifying CATE are estimated by machine learning methods, allowing the number of covariates to be comparable to or larger than the sample size. This is a key feature since identification is generally more credible if the full vector of conditioning variables, including possible transformations, is high-dimensional. The second stage consists of a low-dimensional kernel regression, reducing CATE to a function of the covariate(s) of interest. We consider two variants of the estimator …