Noting that many economic variables display occasional shifts in their second order moments, we investigate the performance of homogenous panel unit root tests in the presence of permanent volatility shifts. It is shown that in this case, panel unit root tests derived under time invariant...

The book provides deep insights into the signal extraction problem - especially at the boundary of a sample, where asymmetric filters must be used - and how to solve it optimally. The traditional model-based approach (TRAMO/SEATS or X-12-ARIMA) is an inefficient estimation method because it...

This paper develops a new approach for variance trading. We show that the discretely-sampled realized variance can be robustly replicated under very general conditions, including when the price can jump. The replication strategy specifies the exact timing for rebalancing in the underlying. The...

We analyze the variance risk of commodity markets. We construct synthetic variance swaps and find significantly negative realized and expected variance swap payoffs in most markets. We find evidence of commonalities among the realized payoffs of commodity variance swaps. We also document...

Innovations in volatility constitute a potentially important asset pricing risk factor that can be tested using the return on variance swaps. We characterize the exposures of returns on equities, bonds and currencies in all regions of the world to U.S. based equity variance risk. We explore...