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Full-Text Articles in Econometrics
Testing The Dimensionality Of Policy Shocks, Jia Li, Viktor Todorov, Qiushi. Zhang
Testing The Dimensionality Of Policy Shocks, Jia Li, Viktor Todorov, Qiushi. Zhang
Research Collection School Of Economics
This paper provides a nonparametric test for deciding the dimensionality of a policy shock as manifest in the abnormal change in asset returns' stochastic covariance matrix, following the release of a macroeconomic announcement. We use high-frequency data in local windows before and after the event to estimate the covariance jump matrix, and then test its rank. We find a one-factor structure in the covariance jump matrix of the yield curve resulting from the Federal Reserve's monetary policy shocks prior to the 2007-2009 financial crisis. The dimensionality of policy shocks increased afterwards due to the use of unconventional monetary policy tools.
A Consistent Specification Test For Dynamic Quantile Models, Peter Horvath, Jia Li, Zhipeng Liao, Andrew J. Patton
A Consistent Specification Test For Dynamic Quantile Models, Peter Horvath, Jia Li, Zhipeng Liao, Andrew J. Patton
Research Collection School Of Economics
Correct specification of a conditional quantile model implies that a particular conditional moment is equal to zero. We nonparametrically estimate the conditional moment function via series regression and test whether it is identically zero using uniform functional inference. Our approach is theoretically justified via a strong Gaussian approximation for statistics of growing dimensions in a general time series setting. We propose a novel bootstrap method in this nonstandard context and show that it significantly outperforms the benchmark asymptotic approximation in finite samples, especially for tail quantiles such as Value-at-Risk (VaR). We use the proposed new test to study the VaR …