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seen Jun 21 at 22:14

Jan
12
comment Asymmetric Volatility Modeling (Interpretation)
If you get good answers to these questions you'll probably have to acknowledge "helpful discussions" on stackexchange in the acknowledgements section of the paper.
Dec
29
comment Volatility models using Rugarch
What are you trying to do? If you're doing an empirical study and you decide to go with the one model that generates statistical significance then this sounds like data snooping bias.
Dec
28
comment What is the intuition behind cointegration?
This is really fantastic.
Dec
28
comment Regressor: Nominal return, continuous return or first difference?
-1 unless it's explained why it's fine to put a non-stationary regressor in the linear model.
Dec
28
comment Regressor: Nominal return, continuous return or first difference?
But the Augmented Dickey Fuller testing shows that it's non-stationary for most countries (p-value is mostly > 0.05). How can I now include it in the regression? Wouldn't I be getting spurious results? Just by eyeballing the data matrix it's obvious that there's trending and all sorts of non-stationary behavior in these series. Completely agree with your second paragraph.
Dec
28
comment How to interpret results of Johansen Test?
I thought we have to make sure we're not entering any $I(0)$ variables into the Johansen procedure? Introductory Econometrics for Finance begins their Johansen chapter with 'Suppose that a set of $g$ variables are under consideration that are $I(1)$ and ....'. Also wouldn't you just get trivial cointegrating relationships if you enter in $I(0)$ variables?
Dec
27
comment How do I graphically represent the evolution of a covariance matrix over time?
Multivariate DCC is another way. There is support for this in the rmgarch package.
Dec
23
comment Why do low standard deviation stocks tend to have superior future returns?
The papers talk about stocks only.
Dec
17
comment What are the best Journals & Conferences in Quantitative Finance?
Here's something (ERA rankings in Australia) but not exactly what you want. lamp.infosys.deakin.edu.au/era/?page=fordet10&selfor=1502
Dec
16
comment Regressor: Nominal return, continuous return or first difference?
Hi Alexey, it is not clear to me what you're suggesting. Is it possible you could write out the proposed transformation you're suggesting that I use in my model?
Dec
16
comment Should I use GARCH volatility or standard deviation in cross-sectional regression?
Yeah I should have. I think we've talked about it enough and we should get on with our lives :-). Thank you for your contribution (just because I changed correct answer doesn't mean I didn't find it helpful!)
Dec
16
comment Regressor: Nominal return, continuous return or first difference?
Thank you for your help! Unfortunately, while it is true that it's already in a rate of return form, the interest rate is almost always non-stationary according to an ADF test so it is not an option to include it as is. Also, could you give some detail about your evoluationary algorithm approach? I am thoroughly intrigued!
Dec
16
comment Should I use GARCH volatility or standard deviation in cross-sectional regression?
Freddy I have been thinking about this for a while. I am still not sure. The reason I switched answers originally is because Bob made me consider EWMA when I had previously not considered it, and also because I don't view computational burden as an issue because I'm using low frequency data (meaning that, in my perception, your resulting recommendation lacked any substance when it came to my specific application).
Dec
16
comment Cointegration trading: Ignoring pairs that aren't economically related
Thanks Rocko. Can you please elaborate on your last sentence?
Dec
13
comment Missing factor in the factor model
@John When is it inappropriate to estimate a factor model with time-varying parameter estimates?
Dec
13
comment How to estimate the covariance of an index with a basket of stocks?
Look at the bilinearity property of the covariance function.
Dec
13
comment Empirical or theoretical quant insights that have shaped your thinking?
Granted, there was a large increase to 0.3 average DCC correlation during the GFC and Eurozone crisis.
Dec
13
comment Empirical or theoretical quant insights that have shaped your thinking?
On your last point, have you read Forbes & Rigobon [Journal of Finance, 2002]? Based on my reading of the contagion literature there is not consensus that correlations increase. The authors find no evidence for increases in correlations (however there is accumulating recent evidence that this does occur). This is the case because the heterscedasticity can bias the Pearson estimates upwards. Also, I looked at 50 indices and their associated exchange rates and the DCC(1,1) correlations between them were only 0.1 on average over the 2001 dot-com crash.
Dec
13
comment Empirical or theoretical quant insights that have shaped your thinking?
Brilliant. Can I ask (i) How can the distress of one firm be diversified away? To me that seems similar to saying that the small size of a firm can be diversified away because its size is firm specific (even though size is one of the most well established priced risks/anomalies). (ii) I think returns are stationary. Whenever I do adf or pp testing over a large number of return series what I find is consistent with a 5% false rejection rate by chance.
Dec
13
comment Cloning Return Streams
Reliable 75%+ correlation is definitely not possible for the vast majority of hedge fund types.