Bayesian Model Averaging (BMA) has recently been discussed in the financial literature as an effective way to account for model uncertainty. In this paper we compare BMA to a new model uncertainty framework introduced by Yang (2004), called Aggregate Forecasting Through Exponential Reweighting,...

The estimation of multivariate GARCH models remains a challenging task, even in modern computer environments. This manuscript shows how Independent Component Analysiscan be used to estimate the Generalized Orthogonal GARCH model in a fraction of the time otherwise required. The proposed method...

This paper shows that in financial markets with endogenous asset supply and demand, both rational and noise traders do coexist in the long run. The finding implies that financial markets are neither informationally nor allocationally efficient. While rational traders have a consistently higher...

This paper introduces an expected value estimator with expert knowledge to the robust estimation of sovereign rating transitions which are characterised by few observations. Ourestimates of default premia within Mexican, Colombian and Brazilian Eurobond yield spreads provide a better fit than...

No, not really. Responding to lingering concerns about the reliability of SVARs, Christiano et al (NBER Macro Annual, 2006, “CEV”) propose to combine OLS estimates of a VAR with a spectral estimate of long-run variance. In principle, thiscould help alleviate specification problems of SVARs in...

This empirical study analyzes market and currency risk premia during financial and political crises within the theoretical framework of the international asset pricing model of Adler and Dumas (1983). The econometric specification extends the multivariate GARCH approach of De Santis and Gerard...

We investigate the consequences for value-at-risk and expected shortfall purposes of using a GARCH filter on various mis-specified processes. In general, we find that the McNeil and Frey (2000) two step procedure has very good forecasting properties. Using an unconditional non filtered tail...

Stylized facts on output and interest rates in the U.S. have so far proved hard to match with business cycle models. But these findings do not acknowledge that the economy might well be driven by different shocks, and by each in different ways. I estimate covariances of output, nominal and real...

Prospect theory has found an increasing attention in many fields of economics. However, it has scarcely been addressed in a macroeconomic growth model. In an earlier paper we introduced prospect theory into a stochastic growth model. This paper focuses on linking the Euler equation induced by...

We introduce a new approach on shape preserving estimation of cumulative distribution functions and probability density functions using the wavelet methodology for multivariate de- pendent data. Our estimators preserve shape constraints such as monotonicity, positivity and integration to one,...