We extend the work done in our “Redux” paper from Oct 2011 to find a weighted composite U.S coincident economic index (CEI) that includes non-zero weightings from all 50 states and when used in a standard Probit model, produces a perfect correlation (R2 of 1) to NBER recession dating. We...

To examine the familiar tradeoff between risk and return in financial investments, we use a rolling two-stage stochastic program to compare mean-risk optimization models with time series momentum strategies. In a backtest of allocating investment between a market index and a risk-free asset, we...

This paper presents a new approach to look at equity market valuations. The paper formulates a derivative of three valuation based ratios widely used by investors and fund managers. The derivative “Equity Market Valuation Index” converts valuation ratios in to an index that rages between...

Using daily return data from the four major Central and Eastern European stock markets including fourteen highly liquid stocks and ATX (Vienna), PX (Prague), BUX (Budapest), and WIG20 (Warsaw) market indices, we model the value-at-risk using a set of univariate GARCH-type models. Our results...

We propose a new method for multivariate forecasting which combines the Generalized Dynamic Factor Model (GDFM) and the multivariate Generalized Autoregressive Conditionally Heteroskedastic (GARCH) model. We assume that the dynamic common factors are conditionally heteroskedastic. The GDFM,...

We propose a new model for volatility forecasting which combines the Generalized Dynamic Factor Model (GDFM) and the GARCH model. The GDFM, applied to a large number of series, captures the multivariate information and disentangles the common and the idiosyncratic part of each series of returns....

This article re-examines the findings of Stock and Watson (2012b) who assessed the predictive performance of dynamic factor models (DFM) over autoregressive (AR) bench-marks for hundreds of target variables by focusing on possible business cycle performance asymmetries in the spirit of Chauvet...

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...

We introduce a multivariate multiplicative error model which is driven by componentspecific observation driven dynamics as well as a common latent autoregressive factor. The model is designed to explicitly account for (information driven) common factor dynamics as well as idiosyncratic effects...

In this paper, we study the dynamic interdependencies between high-frequency volatility, liquidity demand as well as trading costs in an electronic limit order book market. Using data from the Australian Stock Exchange we model 1-min squared mid-quote returns, average trade sizes, number of...