1,720,974 research outputs found
A Simple Test for Linearity Against Exponential Smooth Transition Models with Endogenous Variables
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A two-regime threshold model with conditional skewed Student t distributions for stock returns
No full textA Switching Model with Flexible Threshold Variable: With an Application to Nonlinear Dynamics in Stock Returns
No full textTail Risk Dynamics in Stock Returns: Links to the Macroeconomy and Global Markets Connectedness
Full text linkWe propose a new time-varying peaks over threshold model to study tail risk dynamics in equity markets: the laws of motion for the parameters are defined through the score-based approach. We apply the model to daily returns from U.S. size-sorted decile stock portfolios and show that large firms’ tail risk increases during recessions more than small firms’ tail risk. Our results are consistent with the granular hypothesis of aggregate fluctuations, and we quantify the impact of large firms’ tail risk shocks on the economy.A measure of tail connectedness is proposed: evidence from international equity markets shows that tail connectedness increases during periods of turmoil
Testing for Regime Changes in Portfolios with a Large Number of Assets: A Robust Approach to Factor Heteroskedasticity
No full textWe develop a new test for threshold-type regime changes in the risk exposures in portfolios with a large number of financial assets whose returns exhibit an approximate factor structure. Unlike existing procedures to detect discrete shifts in factor models, our test is robust to regime-specific second moment of the common factors. We rely on an auxiliary threshold regression: we take a weighted cross-sectional average of the cross-sectional units; we estimate the factors from the original model under the null hypothesis of no regime changes; we construct a Lagrange multiplier statistic to test for threshold effect in the auxiliary regression. Numerical results show the good finite sample properties of our procedure. The empirical analysis uncovers the dynamics of portfolio weights and diversification benefits in factor mimicking portfolios across different regimes
Least Squares Estimation of Large Dimensional Threshold Factor Models
Full text linkThis paper studies large dimensional factor models with threshold-type regime shifts in the loadings. We estimate the threshold by concentrated least squares, and factors and loadings by principal components. The estimator for the threshold is superconsistent, with convergence rate that depends on the time and cross-sectional dimensions of the panel, and it does not affect the estimator for factors and loadings: this has the same convergence rate as in linear factor models. We propose model selection criteria and a linearity test. Empirical application of the model shows that connectedness in financial variables increases during periods of high economic policy uncertainty
Predicting the Distribution of Stock Returns: Model Formulation, Statistical Evaluation, VaR Analysis and Economic Significance
No full textUnstable Diffusion Indexes: With an Application to Bond Risk Premia
Full text linkThis paper studies the empirically relevant problem of estimation and inference in diffusion index forecasting models with structural instability. Factor model and factor augmented regression both experience a structural change with different unknown break dates. In the factor model, we estimate factors and loadings by principal components. We consider least squares estimation of the factor augmented regression and propose a break test. The empirical application uncovers instabilities in the linkages between bond risk premia and macroeconomic factors.</p
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