HAC estimators are known to produce test statistics that reject too frequently in finite samples. One neglected reason comes from using the OLS residuals when constructing the HAC estimator. If the regression matrix contains high leverage points, such as from outliers, then the OLS residuals...

Tail risk refers to the possibility that a rare event would adversely affect the value of a portfolio in a significant manner. It became much more relevant due to recent periods of strong market turbulence.We describe how to quantify such risk, which tail risk protection strategies were...

A multi-name credit derivative is a security that is tied to an underlying portfolio of corporate bonds and has payoffs that depend on the loss due to default in the portfolio. The value of a multi-name derivative depends on the distribution of portfolio loss at multiple horizons....

Since the 1970s the characteristics of international business cycles have changed and deeper economic integration has modified the features of cross-country comovement. We formally test for correlation shifts in measures of real economic activity and economic/financial integration. In Europe we...

Responsible use of any portfolio model that incorporates correlation structure requires knowledge of its sampling distribution. This is especially true of models used in stress testing, or ones requiring the specification of particular scenarios with particular correlation values (e.g. in...

Market-driven defaults, such as Archegos, pointed once more to the importance of Wrong Way Risk, concentration and leverage in shaping the tail of the credit loss distribution. In the following, Fabrizio Anfuso presents a minimal framework for the joint dynamics of the market risk factors, the...

In this paper, we consider a robust method of estimating a realized covariance matrix calculated as the sum of cross products of intraday high-frequency returns. According to recent papers in financial econometrics, the realized covariance matrix is essentially contaminated with market...

In observational studies, confounding variables that affect both the exposure and an outcome of interest are a general concern. It is well known that failure to control for confounding variables adequately can worsen inference on an exposure's effect on outcome. In this paper, we explore how...

Estimators of Dynamic Stochastic General Equilibrium (DSGE) Model parameters, as well as impulse response functions, can be wildly inaccurate when data used in the estimation process are de-trended; even if the data are de-trended in the same manner, the model is de-trended. However, little is...

Price spikes are of particular importance due to their severe impacts on consumers, businesses and industry. They constitute a major source of price risk to market participants, e.g., electricity retailers with commitments to meet customers' daily electricity demands. To those trading in several...