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Questions tagged [econometrics]

The use of mathematical methods, especially statistical, in order to analyze economic phenomena, understand the economic relations between them, and develop economic theories. A subset of economics.

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GARCH-MIDAS model for forecasting volatility?

I had a problem when I just estimated the GARCH-MIDAS model on Eviews: I found only the MIDAS model. Can I estimate the GARCH(1,1) model and MIDAS separately, and then multiply them to have GARCH-...
JOUD's user avatar
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GARCH model within a system of simultaneous equations

This is a system of simultaneous equations. The first equations is a GARCH(1,1) model with a exogenous variable. The dependent variable (x) from the fourth equation is exogenous independent variable ...
ZebrasInPjs's user avatar
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66 views

Regressing on Residuals

I have a time series dataset (Local Gov. bond yields and probable determinants). Due to structural breaks in different exogenous variables in different time points, I have an idea of regressing a set ...
Liza Rahimova's user avatar
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20 views

eGARCH(1,1) model evaluation (R). How to assess model integrity?

I am using GARCH modelling for my bachelor thesis in Economics. I am entirely new to the concept, and have only been looking into these kind of models for about a week now. I am trying to do a ...
Sam's user avatar
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2 votes
0 answers
88 views

Stambaugh inference for Investment Analysis when History Lengths Differ

This pertains to Stambaugh in the JFE (vol. 45, 1997 pp 285-331), and I have a question about Proposition 1 results (page 292). (link) To set the background, let's take the smallest relevant ...
Woodpecker's user avatar
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12 views

Error (singularity) in the GRS test applied on portfolios that were used for constructing the Fama-French factors

In the context of the Fama-French 3-factor model, we have six portfolios used for creating the SMB and HML factors: SL, SM, SH, BL, BM, BH. (The notation is: S~small, B~big, L~low, M~medium, H~high). ...
Richard Hardy's user avatar
1 vote
0 answers
48 views

Testing one asset pricing model against another a la Cochrane: why this works

I am reading section section 14.6 of John Cochrane's lectures notes for the course Business 35150 Advanced Investments. On p. 239-240, he discusses testing one asset pricing model against another. I ...
Richard Hardy's user avatar
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94 views

Through-the-cycle rating transition matrix

Suppose we know the observed transition matrix for annual migrations between credit ratings, $T_{ij,t}$, for $N$ years. How is the through-the-cycle (TTC) transition matrix defined? Sometimes the ...
TheTwistedSector's user avatar
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49 views

Shanken's correction for Fama-MacBeth (1973) generalization of the CAPM

Fama & MacBeth (1973) tested the CAPM against an alternative that the dependence between the expected excess return $E(r_{i,t}^∗)$ and the relative systematic risk $\beta_𝑖$ is nonlinear (namely, ...
Richard Hardy's user avatar
3 votes
0 answers
88 views

The original standard error estimation of Fama and French (2015) paper

I have a question about the estimation method of the original paper of Fama and French (2015) regarding the five factor model and the t statistics. Are they using non-robust standard errors or are ...
Mark's user avatar
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2 votes
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51 views

Do resistance levels for financial securities prices exist? [duplicate]

I know there is a large controversy about whether or not technical trading rules are profitable and research results depend on asset classes, time frames, trading costs, risk-adjusted return ...
stollenm's user avatar
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If investors face different tax rates, how can an asset pricing model be built so that it satisfies the incentive constraints of both investors?

The CAPM and other models have been expanded to include the impact of corporate/personal taxes. However, what if these tax rates differ for an investor pool holding the same equity stake (which by ...
lkonoplev's user avatar
1 vote
1 answer
126 views

Interpretation of coefficients of a Probit model [closed]

The exact problem I am trying to solve is as follows. I have a Probit specification: $$ P_t = \Phi(\beta^T x_t) $$ where $\Phi$ is a standard normal CDF and $x$ is a matrix of independent variables ...
DrStrangeLove's user avatar
1 vote
1 answer
170 views

How do asset prices behave in a single-period and multi-period model?

When we talk about the single-period CAPM, the return in a particular period t can be defined as $(P_t - P_{t-1})/P_{t-1}$. Investors plan at t-1 and get a payoff at t. After this period, the same ...
lkonoplev's user avatar
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64 views

Most famous research papers to get started in quant finance [duplicate]

I have a strong background in finance and I know how to code, but I am lacking the statistical modelling part. I have started courses in mathematics and statistics. However, it is turning out very ...
FFFAR's user avatar
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5 votes
2 answers
298 views

Model is economically significant, but has negative $R^2$?

I'm reading a paper by Rama Cont that says (Page 25): We remark that negative R^2 values do not imply that the forecasts are economically meaningless. To emphasize this point, we will incorporate ...
Thomas Johnson's user avatar
2 votes
0 answers
55 views

What is selling intensity, loss intensity, and how can I calibrate them?

Thought asking around on a problem I'm currently facing. I have a hypothetical multi-asset portfolio of equities and bonds, on which I'm trying to measure it's liquidity risk in stressed periods. I've ...
gmsg's user avatar
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2 votes
1 answer
411 views

What program to use for reverse MIDAS?

I know EViews is used for mixed-data sampling (MIDAS). Can someone pls help me identify a program I can use for reverse MIDAS? Thank you.
Elif Candan's user avatar
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0 answers
40 views

How does truncating data deal with long right tails of data? Why is a long right tail bad?

For reference, my coworker graphed the unemployment rate with an HP Filter on. He told me he truncated the data to 95% to deal with this issue but I'm not 100% sure what this means and why its ...
worldCurrencies's user avatar
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0 answers
24 views

Global Country Index for Insurance

I am trying to create a global country index for insurance. So this would be insurance by country. Anybody who is an expert in econometrics can give me some guidance on how to do this? How would I go ...
Ibrahim's user avatar
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69 views

What are the example of "repeated cross-section" and "two cross-sectional dimensions"?

Borusyak, 2021 has a sentence In Section 5 we consider extensions to repeated cross-sections, data defined by two cross-sectional dimensions (e.g. regions and age groups), triple-differences designs, ...
Phil Nguyen's user avatar
3 votes
0 answers
88 views

What is the relationship between the estimated GARCH(1,1) conditional volatility and the true conditional volatility

Suppose that the data has been generated by a GARCH(1,1) model, i.e. \begin{align} y_t &= h_t \epsilon_t, \; \epsilon_t \sim N(0,1) \\ h_t &= \alpha_0 + \alpha_1 \epsilon_{t-1}^2 + \...
Stéphane's user avatar
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Why we need to control for import and exchange rate change when examining asset growth?

Dasgupta , 2019 examines the impact of antitrust laws on asset growth, total net external financing, debt-to-equity ratio. In his regression, I saw that he controls for imports as a percentage of GDP, ...
Phil Nguyen's user avatar
1 vote
0 answers
193 views

How to build Fama-French model factors SMB and HML to compare sustainable index to conventional benchmark?

My goal is to analyze and compare the performance between socially responsible indices and conventional ones. I am comparing for each region (Europe, UK, World, US) a sustainable index to a ...
GBC40's user avatar
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2 votes
0 answers
133 views

Should we include the industry variables when we control for year*industry fixed effects?

In panel data, we control for firms and years fixed effects even we also have some time-variant firm-level regressors. I am wondering whether it also happens at the industry level. If it is the case, ...
Phil Nguyen's user avatar
-1 votes
1 answer
174 views

Why does the rate of inflation vary over time?

Interest rates have varied significantly over the last 50+ years (source: https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart ). Is it possible to comprehensively and succinctly ...
OCPatch's user avatar
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1 vote
0 answers
31 views

Cross-checking Treasury's Major Foreign Holders Report

I was looking for bad things waiting to happen on the Ides of March, and the next Major Foreign Holders of Treasury Securities report came up as a candidate. It is due on March 15th, 2021. The report ...
Sergei Rodionov's user avatar
0 votes
1 answer
904 views

Fama-French model interpretation of coefficients help

So i've run a regression for a stock and these are the results. I was wondering if I'm right in inferring that because the SMB coefficient is negative, this particular stock I've chosen has a large ...
Jack's user avatar
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0 answers
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What is the Id in the ARIMA model in Notes on financial risk of Privault?

I hope this is the right place to ask this question. I am studying the time series from Privault's Notes on Financial Risks. In the ARIMA model part I can't understand what is "I_d", it is ...
Fortgade's user avatar
1 vote
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45 views

Examining individual portfolio allocation changes over time

I am currently working with a pretty large panel dataset containing the investment holdings of many individuals over time (i.e., for each individual I know the positions per stock over time). I was ...
John's user avatar
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-1 votes
1 answer
162 views

How to show that a Brownian motion is normally distributed and that the covariance is zero? [closed]

I need help under standing this question. So i have the following given the logarithm of the price of a share of stock is given by \begin{align*} p(t)=p(0)+\mu t+\sigma W(t), \quad t \in[0, T] \end{...
MortenSw's user avatar
2 votes
1 answer
223 views

Looking for a good introduction to modelling ARCH-type models

I am starting to think about my dissertation topic for my undergraduate degree. I am interested in comparing volatility of stock indices during COVID-19 to the years leading up to the pandemic. I have ...
lef00035's user avatar
4 votes
3 answers
320 views

Correlation vs. dependence in finance

I found an example that shows how two uncorrelated random variables can be dependent: a normally distributed variable $X$ is not correlated with its square $Y=X^2$. What can be $X$ and what can be $Y$ ...
Qwerty's user avatar
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3 votes
1 answer
179 views

Which references would be useful as an introduction to econometrics as it pertains to CONTINUOUS TIME models?

It seems like the problem of trying to estimate model parameters for continuous time models is not commonly covered in standard econometric textbooks, even those focusing on time series. I certainly ...
Stéphane's user avatar
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2 votes
1 answer
93 views

Question on the use of a limit in a proof

I ran into a step in an argument that I can't quite figure out. It's basically how they use a limit that I don't seem to understand. The context is local-to-unity asymptotics in vector autoregressions,...
Stéphane's user avatar
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-1 votes
1 answer
130 views

Why is Banque de France using BVAR with different orders of integration?

Don't all the variables used have to be of the same order of integration in VAR models ? In this paper Bayesian VAR Forecasts, Survey Information and Structural Change in the Euro Area Gergely Ganics ...
Jur's user avatar
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0 votes
1 answer
176 views

Monte Carlo approach and methods for generating random returns

Recently I found myself reading more about Monte Carlo approach in m.v. portfolio optimization framework. I already discuss the topic on this forum (if interested please consider the following links - ...
Nipper's user avatar
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1 vote
0 answers
70 views

Can you approximate stochastic volatility processes using GARCH processes?

Let me specific. Suppose that you have the following process: \begin{align} z_t &= \sigma_t \epsilon_t \\ \sigma_t &= \sigma \exp \left( \frac{v_t}{2} \right) \end{align} where $v_t$...
Stéphane's user avatar
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0 votes
1 answer
73 views

Is it legitimate to assess the resilience of industries and sectors through the stock market?

I would like to assess the resilience of some sectors in Europe but I honestly lack data, and it seemed to me the simplest solution to be able to implement univariate (arima etc) and multivariate (...
Jur's user avatar
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2 votes
0 answers
84 views

Applying GRS-test on non-normal residuals with autocorrelation

Is it valid to apply GRS-test (Gibbons, Ross and Shanken 1989) on non-normal and autocorrelated residuals? I got residuals using 10 test-assets regressed on 3-factor and carhart. If it is valid, how ...
Hamed Ghorbani's user avatar
-1 votes
2 answers
313 views

What's the difference between Statistics and Econometrics? [closed]

I can't really grasp the similarities and differences between Statistics and Econometrics. Is Econometrics includes every Statistical models inside it? or is there areas of Statistics outside of the ...
curiousTrader's user avatar
1 vote
0 answers
221 views

CAPM and the Fama-MacBeth (1973)

I need to conduct the Fama-MacBeth (FM) procedure for my thesis to test the ability of the six-factor model to predict future expected returns. In univariate regressions of expected excess returns on ...
Ben's user avatar
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10 votes
2 answers
1k views

Suppose that we are wrong about the relevant class of distributions for financial economics and econometrics. Now what?

I read a very interesting paper by Harris (2017) where he points out some interesting link between market microstructure and the distribution of returns on equity. You can make a good case that the ...
Stéphane's user avatar
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0 votes
1 answer
220 views

What is the R code for estimating copula parameters of BB1 with dim=2? And what's the code for gof test of BB1?

Kindly assist with R code for BB1 copula. Text books and research articles provide codes for clayton, gumbel, frank, normal and t copulas. However, I can't find code for BB1, the copula family ...
user44687's user avatar
0 votes
3 answers
446 views

maximum likelihood pdf

I am looking at the topic maximum likelihood, and I cannot understand why we set the pdf of $y_{t}$ equal to 1. It is with regards to a OLS example. The information i got is this: Model: $y_{t}=\...
mbih's user avatar
  • 111
1 vote
1 answer
3k views

Forecasting Volatility using GARCH in Python - Arch Package

Disclaimer: Posted this on stackoverflow, but maybe here should be the right place to ask something about GARCH I'm testing ARCH package to forecast the Variance (Standard Deviation) of two series ...
Thales Marques's user avatar
1 vote
1 answer
70 views

Asset prices Boom,Bust and Recovery cycles

Is there any systematic way to detect the Boom, bust and Recovery cycles in Asset Prices ? Are there any good references about the Topic ? Thanks in advance.
Neemo's user avatar
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3 votes
2 answers
161 views

Cash flows regression on macroeconomic data

I'm looking into a research project and am struggling to find any existing work on this or whether I'm asking the right question. My question is to test the relationship between macroeconomic ...
StatsHelp's user avatar
4 votes
1 answer
336 views

evaluating garch models

I used ugarchroll to backtest my garch model on S&P returns this is my code ...
Pelumi's user avatar
  • 339
1 vote
0 answers
46 views

Correlation coefficient without cash flows?

I'm an intern at a company and one of our tasks is to calculate the the probability of default of both participants of a Swap(a Client and a Bank), for which we first need the correlation coefficient ...
sasha's user avatar
  • 21