The volatility specification of the Markov-switching Multifractal (MSM) model is proposed as an alternative mechanism for realized volatility (RV). We estimate the RV-MSM model via Generalized Method of Moments and perform forecasting by means of best linear forecasts derived via the...

In this paper, we propose a model based on multivariate decomposition of multiplicative - absolute values and signs - components of several returns. In the m-variate case, the marginals for the m absolute values and the binary marginals for the m directions are linked through a 2m-dimensional...

We introduce the notion of realized copula. Based on assumptions of the marginal distributions of daily stock returns and a copula family, realized copula is defined as the copula structure materialized in realized covariance estimated from within-day high-frequency data. Copula parameters are...

We study the well-known multiplicative Lognormal cascade process in which the multiplication of Gaussian and Lognormally distributed random variables yields time series with intermittent bursts of activity. Due to the non-stationarity of this process and the combinatorial nature of such a...

Two of the most important stylized facts well-known in finance relate to the non-Gaussian distribution and to the volatility clustering of stock returns. In this paper, we show that a new class of stochastic processes – called Multifractional Processes with Random Exponent (MPRE) – can...

We propose a new approach to imposing economic constraints on forecasts of the equity premium. Economic constraints are used to modify the posterior distribution of the parameters of the predictive return regression in a way that better allows the model to learn from the data. We consider two...

The asymmetry in price pressure from seller vs. buyer-initiated transactions is identified as valuable measure of downside liquidity for corporate bonds. While the evidence of illiquidity on risk premium in the cross-section of corporate bonds is mixed, the aggregate liquidity asymmetry has a...

The presence of time series momentum effect has been widely documented in the financial markets across asset classes and countries. We find a predictable pattern of the realized semi-variance to the future individual asset return, especially during the stressed states of time series momentum...

We analyze the performance of a comprehensive set of equity premium forecasting strategies. All strategies were found to outperform the mean in previous academic publications. However, using a multiple testing framework to account for data snooping, our findings support Welch and Goyal (2008) in...