In empirical finance and in time series applied economics in general, the least squares model is the workhorse. In class there is much discussion of the assumptions of exogeneity, homoskedasticity and serial correlation. However in practice it may be unstable regression coefficients that are...

We investigate the sources of skewness in aggregate risk-factors and the cross-section of stock returns. In an ICAPM setting with conditional volatility, we find theoretical time series predictions on the relationships among volatility, returns, and skewness for priced risk factors. Market...

In financial time series analysis we encounter several instances of non negative valued processes (volumes, trades, durations, realized volatility, daily range, and so on) which exhibit clustering and can be modeled as the product of a vector of conditionally autoregressive scale factors and a...

We propose a hybrid model of portfolio credit risk where the dynamics of the underlying latent variables is governed by a one factor GARCH process. The distinctive feature of such processes is that the long-term aggregate return distributions can substantially deviate from the asymptotic...

We propose a hybrid model of portfolio credit risk where the dynamics of the underlying latent variables is governed by a one factor GARCH process. The distinctive feature of such processes is that the long-term aggregate return distributions can substantially deviate from the asymptotic...

The volatility term structure (VTS) reflects market expectations of average asset volatility over different time horizons. Various stochastic volatility models provide forecasts of the VTS and how it shifts in response to changes in market conditions. This paper develops a methodology for...

The Multiplicative Error Model introduced by Engle (2002) for positive valued processes is specified as the product of a (conditionally autoregressive) scale factor and an innovation process with positive support. In this paper we propose a multivariate extension of such a model, by taking into...

We introduce a new model to measure unconditional volatility, the Spline-GARCH. The model is applied to equity markets for 50 countries for up to 50 years of daily data. Macroeconomic determinants of unconditional volatility are investigated. It is found that volatility in macroeconomic factors...

The volatility term structure (VTS) reflects market expectations of asset volatility over different horizons. These expectations change over time, giving dynamic structure to the VTS. This paper evaluates volatilitymodels on the basis of their performance in hedging option price changes due to...

This paper investigates the empirical characteristics of investor risk aversion over equity return states by estimating a time-varying pricing kernel, which is referred to as the empirical pricing kernel (EPK). The empirical pricing kernel is the preference function that rationalizes a...