We obtain new methodological and empirical perspectives on the fundamental risk-return tradeoff in stock returns by imposing economic and asset pricing motivated constraints on the equity premium. In contrast to highly ambiguous past empirical findings, these constraints result in a nonlinear...

We develop a similarity-based structural vector autoregressive (SVAR) model using the similar clusters of data relevant for the prevailing initial macroeconomic conditions of interest. Our computationally attractive simple approach enables us to uncover time-varying effects of structural...

In this note, we describe the construction of a coincident composite index measuring economic activity in the Finnish economy. We combine information from different sectors of the Finnish economy using a dynamic factor model that permits to extract the business cycle index. The underlying...

We develop a flexible nonparametric similarity-based approach to predict the state of the business cycle in different interest rate environments. Our approach provides methodological advantages over parametric logit and probit models and new empirical perspectives on the usefulness of the term...

We introduce a structural vector autoregressive model containing strictly positive components. Our nonlinear model results in explicit formulae for impulse response and forecast error variance decomposition analyses, which ease practical computations and structural interpretations. We illustrate...

In this paper, various financial variables are examined as predictors of the probability of a recession in the USA and Germany. We propose a new dynamic probit model that outperforms the standard static model, giving accurate out-of-sample forecasts in both countries for the recession period...

This paper introduces a Lagrange Multiplier (LM) test for testing an autoregressive structure in a binary time series model proposed by Kauppi and Saikkonen (2008). Simulation results indicate that the two versions of the proposed LM test have reasonable size and power properties when the sample...

In the empirical finance literature findings on the risk return tradeoff in excess stock market returns are ambiguous. In this study, we develop a new QR-GARCH-M model combining a probit model for a binary business cycle indicator and a regime switching GARCH-in-mean model for excess stock...