If stock prices followed a random walk, uncertainty about future stock prices would be so great that the observed bias towards equities in long-term investment portfolios would be surprising. The good news is that if, as a growing body of research suggests, there is even a weak tendency for...

The paper presents various tests for assessing whether a time series is subject to drift. We first consider departures from the null hypothesis of no drift against the alternative of a deterministic and/or a non-stationary stochastic drift with initial value zero. We show that the standard...

The contingency table literature on tests for dependence among discrete multi-category variables assume that draws are independent, and there are no tests that account for serial dependencies ? a problem that is particularly important in economics and finance. This paper proposes a new test of...

The GARCH-t model is widely used to predict volatilty. However, modeling the conditional variance as a linear combination of past squared observations may not be the best approach if the standardized observations are non-Gaussian. A simple modi.cation lets the conditional variance, or its...

This paper estimates the effect of the merchant interconnector between Norway and the Netherlands on the level and residual volatility of hourly day-ahead electricity prices in the two connected markets. The price effects are estimated using single equation ARMA models and the volatility effects...

In dynamic conditional score models, the innovation term of the dynamic specification is the score of the conditional distribution. These models are investigated for non-negative variables, using distributions from the generalized beta and generalized gamma families. The log-normal distribution...

Empirical evidence suggests that many macroeconomic and financial time-series are subject to occasional structural breaks. In this paper we present analytical results quantifying the effects of such breaks on the correlation between the forecast and the realisation, and on the ability to...

This paper analyses the influence of weather variables on the efficiency of electricity distribution utilities in Argentina, Brazil, Chile and Peru. The data covers 82 firms that operate in the previously mentioned countries which represent more than 90 per cent of the distribution market of...

In econometric analysis, non-nested models arise naturally when rival economic theories are used to explain the same phenomenon, such as unemployment, inflation or output growth. The authors examine the problem of hypothesis testing when the models under consideration are ‘non-nested’ or...

This paper considers information criteria as model evaluation tools for nonlinear threshold models. Results concerning the consistency of information criteria in selecting the lag order of linear autoregressive models are extended to nonlinear autoregressive threshold models. Extensive Monte...