In this paper we investigate the forecast performance of nonlinear error-correction models with regime switching. In particular, we focus on threshold and Markov-switching error-correction models where adjustment towards long-run equilibrium is nonlinear and discontinuous. Our simulation study...

This study investigates the nature of relationship between price and trading volume for 50 Indian stocks. Firstly the contemporaneous and asymmetric relation between price and volume are examined. Then we examine the dynamic relation between returns and volume using VAR, Granger causality,...

This research addresses a simple but important unanswered question in the factor investing literature: how do the factor exposures of equity factor strategies decay over time? The answer to this question has two important practical consequences. Firstly, understanding how a strategy’s factor...

Pair trading is a strategy which relies on betting on the relative mispricing of the spread between two securities which share a long-term relationship. These strategies have shown to perform well with equities, however not much research has been conducted in the field of cryptocurrencies, even...

We explore the cost of implicit leverage associated with an S&P 500 Index futures contract and derive an implied financing rate (the Futures-Implied Rate or FIR), based on a simple model of stock and futures, without any explicit arbitrage or other relationship to market interest rates. We...

The proliferation of factor investing strategies in recent years has highlighted the idea that a portfolio can harvest improved risk-adjusted returns through timed exposure to risk factors during times of elevated risk premia. While there is a large body of research on such risk factors and risk...

A time series model is discussed that incorporates both permanent and transient effects. Estimation techniques are given, and the power of the likelihood ratio test is assessed. When applied to the monthly price/earnings series of the S&P 500 over the period 1871-2013, both permanent and...

We conduct an econometric analysis of bubbles in housing markets in the OECD area, using quarterly OECD data for 18 countries from 1970 to 2013. We pay special attention to the explosive nature of bubbles and use econometric methods that explicitly allow for explosiveness. First, we apply the...

Hierarchical analysis is considered and a multilevel model is presented in order to explore causality, chance and complexity in financial economics. A coupled system of models is used to describe multilevel interactions, consistent with market data: the lowest level is occupied by agents...