The asymptotic distributions of the maximum likelihood estimator of the persistence parameter are developed in a linear diffusion model under three sampling schemes, long-span, in-fill and double. Simulations suggest that the in-fill asymptotic distribution gives a more accurate approximation to...

We investigate whether the use of component forecasts improves the accuracy of a portfolio forecast which uses only aggregate data. The results show that the use of component data improves the accuracy of aggregate forecasts. Furthermore, the long–short trading strategy based on the component...

We use extreme value theory to analyse the tails of a momentum strategy’s return distribution. The asymmetry between the fat left tail and thin right tail strongly reduces a momentum strategy’s prospective utility levels.

This paper shows that when Value-at-Risk constrained institutional investors care about their relative standings among the peer group, more risk averse investors would take more risk, which improves the risk sharing and lowers the volatility.

Estimates of agents’ risk aversion differ between market studies and experimental studies. We demonstrate that these estimates can be reconciled through consistent treatment of agents’ propensity for narrow framing.

This paper proposes a new dividend-based S&P 500 Index return predictor, the implied dividend yield term structure (IDYTS). We show that the IDYTS is a “cleaner” predictor than its conventional counterpart, the dividend price ratio (DP), in that the expected return is a linear combination...

In this study, we determine the reliability and exogeneity of four popular monetary policy shock measures, namely the narrative series of Romer and Romer (2004), the high-frequency series of Barakchian and Crowe (2013), the high-frequency series of Gertler and Karadi (2015), and the hybrid...

IVX estimation is used increasingly often in predictive regressions with regressors of unknown persistence. While not exhibiting the second-order bias the OLS estimator has in this setup, IVX estimators have reduced rates of convergence when the regressors are highly persistent. The reduced...

In this paper we propose a new methodology in improving the Diffusion Index forecasting model (Stock and Watson, 2002a, 2002b) using hard thresholding with robust KVB statistic for regression hypothesis tests (Kiefer et al., 2000). The new method yields promising results in the context of long...

This article tests the linearity assumption underlying the popular heterogeneous autoregressive model for realized volatility (HAR-RV). We implement a consistent model specification test that is robust to both distributional and model misspecification. We find that, using a nonparametric HAR-RV...