This paper addresses the poor performance of the Expectation-Maximization (EM) algorithm in the estimation of low-noise dynamic factor models, commonly used in macroeconomic forecasting and nowcasting. We show analytically and in Monte Carlo simulations how the EM algorithm stagnates in a...

We analyze output growth risk with respect to financial conditions across U.S. manufacturing industries. Using a multi-level quantile regression approach, we find strong heterogeneity in growth risk, particularly between the more vulnerable durable goods sector and the more resilient nondurable...

Existing studies on interest rate forecasting either treat yields as being stationary around a fixed mean or as a random walk process. In this study we consider forecasting the term structure of interest rates with the assumption that the yield curve is driven by factors that are stationary...

Literature studying comovement in commodity prices provides mixed evidence for whether commodity markets are segmented or driven by common factors. We provide a joint framework to study comovement across 24 of the most traded commodities over 20 years. The framework benefits from using the whole...

We investigate the added value of combining density forecasts focused on a specific region of support. We develop forecast combination schemes that assign weights to individual predictive densities based on the censored likelihood scoring rule and the continuous ranked probability scoring rule...

We study why a majority of trades happen during the pit hours, i.e. when the trading pit is open. We examine the case of 30-year U.S. Treasury futures. The pit hour activity clustering cannot be explained by the informativeness of pit trading or the liquidity. Instead, a feedback mechanism...

The implied volatility surface is the collection of volatilities implied by option contracts for different strike prices and time-to-maturity. We study factor models to capture the dynamics of this three-dimensional implied volatility surface. Three model types are considered to examine...

We explore intraday variation in the contribution to price discovery across different exchanges. We estimate a structural model with time-varying parameters in state space form using Maximum Likelihood. An extensive simulation study provides evidence for the accuracy of this method. We analyze...

This paper considers the uncertainty associated with upcoming Federal Open Market Committee (FOMC) announcements and the extent to which participants in the fed funds futures market prepare for such announcements before they actually occur. We demonstrate that markets set up well in advance of...

We model the impact of financial conditions on asset market volatilities and correlations. We extend the Spline-GARCH model for volatility and DCC model for correlation to allow for inclusion of indexes that measure financial conditions. In our empirical application we consider daily stock...