We present a two-stage model for the decision making process of financial analysts when issuing earnings forecasts. In the first stage, financial analysts perform a fundamental earnings analysis in which they are, potentially, subject to a behavioral bias. In the second stage analysts can adjust...

Many researchers use GARCH models to generate volatility forecasts. We show, however, that such forecasts are too variable. To correct for this, we extend the GARCH model by distinguishing two regimes with different volatility levels. GARCH effects are allowed within each regime, so that our...

Most economists intuitively consider purchasing power parity (PPP) to be true. Nevertheless, quite surprisingly, the empirical literature is not very supportive for PPP. In this paper, however, we find evidence in favor of PPP using a new test. The test is embedded in a Markov regime-switching...

Bayesian model averaging attempts to combine parameter estimation and model uncertainty in one coherent framework. The choice of prior is then critical. Within an explicit framework of ignorance we define a ‘suitable’ prior as one which leads to a continuous and suitable analog to the...

This article is concerned with the estimation of linear regression models with uncertainty about the choice of the explanatory variables. We introduce the Stata commands bma and wals which implement, respectively, the exact Bayesian Model Averaging (BMA) estimator and the Weighted Average Least...

Consider the nonparametric regression model Y = m(X)+e, where the function m is smooth, but unknown.We construct tests for the independence of e and X, based on n independent copies of (X; Y ).The testing procedures are based on differences of neighboring Y 's.We establish asymptotic results for...

Two model averaging approaches are used and compared in estimating and forecasting dynamic factor models, the well-known BMA and the recently developed WALS. Both methods propose to combine frequentist estimators using Bayesian weights. We apply our framework to the Armenian economy using...

AMS classifications: 62G08, 62G10, 62G20, 62G30; 60F17.