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Better the Devil You Know : Improved Forecasts from Imperfect Models

Oh, Dong Hwan; Patton, Andrew J. - 2021

Many important economic decisions are based on a parametric forecasting model that is known to be good but imperfect. We propose methods to improve out-of-sample forecasts from a misspecified model by estimating its parameters using a form of local M estimation (thereby nesting local OLS and...

Persistent link: https://www.econbiz.de/10013321462

The Effects of Volatility on Liquidity in the Treasury Market

Meldrum, Andrew; Sokolinskiy, Oleg - 2023

We study the relationship between volatility and liquidity in the market for on-the-run Treasury securities using a novel framework for quantifying price impact. We show that at times of relatively low volatility, marginal trades that go with the flow of existing trades tend to have a smaller...

Persistent link: https://www.econbiz.de/10014350704

High-Dimensional Copula-Based Distributions with Mixed Frequency Data

Oh, Dong Hwan; Patton, Andrew J. - 2021

and copulas. The dependence between returns is decomposed into linear and nonlinear components, enabling the use of high … frequency data to accurately forecast linear dependence, and a new class of copulas designed to capture nonlinear dependence … among the resulting uncorrelated, low frequency, residuals. Estimation of the new class of copulas is conducted using …

Persistent link: https://www.econbiz.de/10013221496

Linear Cointegration of Nonlinear Time Series with an Application to Interest Rate Dynamics

Nesmith, Travis D. - 2007

We derive a definition of linear cointegration for nonlinear stochastic processes using a martingale representation theorem. The result shows that stationary linear cointegrations can exhibit nonlinear dynamics, in contrast with the normal assumption of linearity. We propose a sequential...

Persistent link: https://www.econbiz.de/10012730515

Ivcrc : An Instrumental Variables Estimator for the Correlated Random Coefficients Model

Benson, David; Masten, Matthew; Torgovitsky, Alexander - 2020

We discuss the ivcrc module, which implements an instrumental variables (IV) estimator for the linear correlated random coefficients (CRC) model. The CRC model is a natural generalization of the standard linear IV model that allows for endogenous, multivalued treatments and unobserved...

Persistent link: https://www.econbiz.de/10014095923

Bayesian Estimation of Time-Changed Default Intensity Models

Gordy, Michael B. - 2015

We estimate a reduced-form model of credit risk that incorporates stochastic volatility in default intensity via stochastic time-change. Our Bayesian MCMC estimation method overcomes nonlinearity in the measurement equation and state-dependent volatility in the state equation. We implement on...

Persistent link: https://www.econbiz.de/10013028638

Time-Varying Volatility and the Power Law Distribution of Stock Returns

Warusawitharana, Missaka - 2016

While many studies find that the tail distribution of high frequency stock returns follow a power law, there are only a few explanations for this finding. This study presents evidence that time-varying volatility can account for the power law property of high frequency stock returns. The power...

Persistent link: https://www.econbiz.de/10013210380

Counterparty risk and counterparty choice in the credit default swap market

Du, Wenxin; Gadgil, Salil; Gordy, Michael B.; Vega, Clara - 2016

We investigate how market participants price and manage counterparty risk in the post-crisis period using confidential trade repository data on single-name credit default swap (CDS) transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts, but a large...

Persistent link: https://www.econbiz.de/10011578787

Dealer Networks

Li, Dan - 2014

Dealers in over-the-counter securities form networks to mitigate search frictions. The audit trail for municipal bonds shows the dealer network has a core-periphery structure. Central dealers are more efficient at matching buyers and sellers than peripheral dealers, which shortens intermediation...

Persistent link: https://www.econbiz.de/10013043571

The Fragility of Discretionary Liquidity Provision - Lessons from the Collapse of the Auction Rate Securities Market

Han, Song; Dan, Li - 2011

We study the fragility of discretionary liquidity provision by major financial intermediaries during systemic events. The laboratory of our study is the recent collapse of the auction rate securities (ARS) market. Using a comprehensive dataset constructed from auction reports and intraday...

Persistent link: https://www.econbiz.de/10014179447

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