This paper considers a simple model of credit risk and derives the limit distribution of losses under different assumptions regarding the structure of systematic risk and the nature of exposure or firm heterogeneity. We derive fat-tailed correlated loss distributions arising from Gaussian (i.e....

In theory the potential for credit risk diversifcation for banks could be substantial. Portfolios are large enough that idiosyncratic risk is diversifed away leaving exposure to systematic risk. The potential for portfolio diversifcation is driven broadly by two characteristics: the degree to...

This paper proposes a modi?ed version of Swamy’s test of slope homogeneity for panel data models where the cross section dimension (N) could be large relative to the time series dimension (T). The proposed test exploits the cross section dispersion of individual slopes weighted by their...

This paper considers estimation and inference in panel vector autoregressions (PVARs) with fixed effects when the time dimension is finite and the cross-sectional dimension is large. A Maximum Likelihood (ML) estimator based on a transformed likelihood function is proposed and shown to be...

As a unified discipline, econometrics is still relatively young and has been transforming and expanding very rapidly over the past few decades. Major advances have taken place in the analysis of cross sectional data by means of semi-parametric and non-parametric techniques. Heterogeneity of...

The purpose of this paper is to apply recent advances in the econometrics of panel data to a problem that has a clear spatial dimension. We model the dynamic adjustment of real house prices using data at the level of US States. In the last decade, in most OECD countries there has been a...

This paper considers the problem of model uncertainty in the case of multi-asset volatility models and discusses the use of model averaging techniques as a way of dealing with the risk of inadvertently using false models in portfolio management. In particular, it is shown that under certain...

This paper conducts a broad-based comparison of iterated and direct multi-step forecasting approaches applied to both univariate and multivariate models. Theoretical results and Monte Carlo simulations suggest that iterated forecasts dominate direct forecasts when estimation error is a...

This paper presents a simple model of state-dependent pricing that allows identification of the relative importance of the degree of price rigidity that is inherent to the price setting mechanism (intrinsic) and that which is due to the price’s driving variables (extrinsic). Using two data...

This paper presents an empirical analysis of the efficiency of the UK debt management authorities's (DMA) behaviour from a cost minimisation perspective over the period January 1985 to March 1995. During this period, the maturity structure of the government's bond portfolio was subject to...