| 1. |
- Bodnar, Taras, et al.
(author)
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Dynamic Conditional Correlation Multiplicative Error Processes
- 2016
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In: Journal of Empirical Finance. - : Elsevier BV. - 0927-5398 .- 1879-1727. ; 36, s. 41-67
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Journal article (peer-reviewed)abstract
- We introduce a dynamic model for multivariate processes of (non-negative) high-frequency tradingvariables revealing time-varying conditional variances and correlations. Modeling the variables' conditional mean processes using a multiplicative error model, we map the resulting residuals into aGaussian domain using a copula-type transformation. Based on high-frequency volatility, cumulativetrading volumes, trade counts and market depth of various stocks traded at the NYSE, we show thatthe proposed transformation is supported by the data and allows capturing (multivariate) dynamicsin higher order moments. The latter are modeled using a DCC-GARCH specification. We suggest estimating the model by composite maximum likelihood which is sufficientlyflexible to be applicablein high dimensions. Strong empirical evidence for time-varying conditional (co-)variances in tradingprocesses supports the usefulness of the approach. Taking these higher-order dynamics explicitlyinto account significantly improves the goodness-of-fit and out-of-sample forecasts of the multiplicative error model.
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| 2. |
- Chevallier, Julien, et al.
(author)
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Market integration and financial linkages among stock markets in Pacific Basin countries
- 2018
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In: Journal of Empirical Finance. - : ELSEVIER SCIENCE BV. - 0927-5398 .- 1879-1727. ; 46, s. 77-92
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Journal article (peer-reviewed)abstract
- Financial development and globalization have significantly integrated stock markets around the world. This higher degree of interdependence and integration not only provides firms with higher access to international capital markets with lower cost of equity but also generates upward vulnerabilities for local markets due to their exposure to global and regional shocks. This article focuses on the level of interdependence across the Pacific Basin stock markets using the return spillover measure proposed by Diebold and Yilmaz (2009, 2012), given their increasing role in global trade and finance. We are also interested in investigating the effect of shocks affecting the United States and the Japanese stock markets as well as their transmission to the emerging markets. We mainly find that: (1) the interdependence of the emerging stock markets in the ASEAN countries is driven by a higher exposure to the US shocks than to shocks affecting the developed economies of East Asia, and (ii) the cross-market linkages in the Pacific Basin region have become stronger over time, which may reduce the benefit of regional diversification strategies and expose the countries of the region to increasing contagion risk. These results have important implications for public policies related to the issue of regional and global financial integration. (C) 2017 Elsevier B.V. All rights reserved.
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| 3. |
- Dzieliński, Michał, et al.
(author)
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Asymmetric attention and volatility asymmetry
- 2018
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In: Journal of Empirical Finance. - : Elsevier BV. - 0927-5398 .- 1879-1727. ; 45, s. 59-67
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Journal article (peer-reviewed)abstract
- Analyzing a large sample of U.S. firms, we show that the asymmetry of stock return volatility is positively related to investor attention and differences of opinion. Using the number of analysts following a given firm to capture attention and the dispersion in analyst forecasts as a common proxy for differences of opinion, we show that the two effects are complementary. Furthermore, the effect of attention is strongest among stocks with low institutional ownership and high idiosyncratic volatility. Our results are robust to the traditional “leverage effect” explanation of volatility asymmetry. The findings relate to the previously documented relationship between attention and volatility and suggest that volatility asymmetry is driven by asymmetric attention.
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| 4. |
- Ghosh, C., et al.
(author)
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On the role of foreign directors : Evidence from cross-listed firms
- 2021
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In: Journal of Empirical Finance. - : Elsevier. - 0927-5398 .- 1879-1727. ; 63, s. 177-202
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Journal article (peer-reviewed)abstract
- We examine the determinants of appointment of U.S. independent directors (USIDs), and their impact and effectiveness, on the boards of cross-listed foreign firms versus non-cross-listed firms. For non-cross-listed firms, significant determinants of USID presence include factors related to both advising and monitoring roles, whereas for cross-listed firms, appointment of USIDs are related to monitoring factors. We find that USIDs have a significantly positive impact on cross-listed firms’ value, especially for firms from countries that are culturally and institutionally different from U.S. and countries with weak investor protection. The positive value effect is strongest for firms in which USIDs serve on governance committees. We also find that cross-listed firms with UISDs are better at acquiring both domestic and cross-border targets and have higher CEO turnover sensitivity. For non-cross-listed firms, USIDs have negative or no impact on value.
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| 5. |
- HOU, Ai Jun, et al.
(author)
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Modelling and Forecasting Short-Term Interest Rate Volatility: A Semiparametric Approach
- 2011
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In: Journal of Empirical Finance. - : Elsevier BV. - 0927-5398 .- 1879-1727. ; 18:4, s. 692-710
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Journal article (peer-reviewed)abstract
- This paper employs a semiparametric procedure to estimate the diffusion process of short-term interest rates. The Monte Carlo study shows that the semiparametric approach produces more accurate volatility estimates than models that accommodate asymmetry, levels e¤ect and serial dependence in the conditional variance. Moreover, the semiparametric approach yields robust volatility estimates even if the short rate drift function and the underlying innovation distribution are misspeci.ed. Empirical investigation with the U.S. three-month Treasury bill rates suggests that the semipara-metric procedure produces superior in-sample and out-of-sample forecast of short rate changes volatility compared with the widely used single-factor diffusion models. This forecast improvement has implications for pricing interest rate derivatives.
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| 6. |
- Kladivko, Kamil, 1979-, et al.
(author)
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Maximum likelihood estimation of the Hull–White model
- 2023
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In: Journal of Empirical Finance. - : Elsevier. - 0927-5398 .- 1879-1727. ; 70, s. 227-247
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Journal article (peer-reviewed)abstract
- We suggest a maximum likelihood estimation method for the popular Hull–White interest rate model. Our method uses a time series of yield curves to estimate model parameters under both risk-neutral and real-world measures. The suggested approach thus offers a solution to two possible drawbacks of calibration to prices of vanilla interest rate derivatives, the current standard for identification of time-inhomogeneous interest rate models. First, our method allows for derivatives pricing on illiquid markets where prices of vanilla products, which the model is calibrated to, are not available. Second, as we identify the real-world measure, we facilitate the use of the Hull–White model for forecasting and hence risk and portfolio management. The main idea of our approach is to maximise the likelihood of yields in periods subsequent to the time at which the model’s time-dependent parameter is fitted to a market forward rate curve. The empirical part of the paper implements the suggested estimation approach on EUR interest rate data. We investigate in-sample and out-of-sample performance of the estimated model, and compare estimation with calibration to swaption prices.
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| 7. |
- Lindman, Sebastian, et al.
(author)
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Market Impact on financial market integration: Cross-quantilogram analysis of the global impact of the euro
- 2020
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In: Journal of Empirical Finance. - : ELSEVIER. - 0927-5398 .- 1879-1727. ; 56, s. 42-73
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Journal article (peer-reviewed)abstract
- We contribute to the literature by providing a more comprehensive understanding of the impact the euro has had on financial market integration with economies of different characteristics outside and within the European market via inclusion of market conditions influence on the level of financial integration. Our paper employs the recently developed cross-quantilogram (Han et al., 2016) approach to examine quantile dependence between the conditional stock return distributions of Germany and the UK with that of three common currency groups within EMU (Finland, France, and Italy), two global leading markets (the US and Japan), and two of the most promising emerging markets (China and India). We find three key results. First, both the EU membership and the common currency union affect the degree of financial market integration. Nevertheless, disentangling the effects of EU membership from the common currency shows that the common currency group has an additional impact on financial integration, as the degree of dependence is stronger in the common currency group than in the sovereign currency group and other groups. Second, there is a heterogeneous dependence structure, which is strongly observed for the UK and German stock returns with that of developed (the US and Japan) and emerging markets (India and China). Third, cross-quantile correlations change over time, especially in low and high quantiles, indicating that they are prone to jumps and discontinuities in the dependence structure. As far as we are aware, this is the first study in this field employing a cross-quantilogram method to examine the impact of different market conditions on the correlations, making our study a pioneer in the field of stock market integration.
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| 8. |
- Maio, Paulo, et al.
(author)
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On the driving forces of real exchange rates: Is the Japanese Yen different?
- 2023
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In: JOURNAL OF EMPIRICAL FINANCE. - 0927-5398 .- 1879-1727. ; 74
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Journal article (peer-reviewed)abstract
- We estimate variance decompositions of the real exchange rate (q) for 19 currencies based on a present-value relation. At very short horizons, the driving force of q is predictability of the future exchange rate. At long horizons, return predictability drives most variation in q, with predictability of interest differentials playing a secondary role. This pattern is especially strong for the Non-G10 currencies. However, the long-run predictability mix associated with the Japanese Yen clearly deviates from the other currencies and is unstable over time. The quantitative simulation of a liquidity-based exchange rate model largely replicates our main empirical findings.
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| 9. |
- Nguyen, Hoang, 1989-, et al.
(author)
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Dynamic relationship between Stock and Bond returns : A GAS MIDAS copula approach
- 2023
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In: Journal of Empirical Finance. - : Elsevier. - 0927-5398 .- 1879-1727. ; 73, s. 272-292
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Journal article (peer-reviewed)abstract
- Stock and bond are the two most crucial assets for portfolio allocation and risk management. This study proposes generalized autoregressive score mixed frequency data sampling (GAS MIDAS) copula models to analyze the dynamic dependence between stock returns and bond returns. A GAS MIDAS copula decomposes their relationship into a short-term dependence and a long-term dependence. While the long-term dependence is driven by related macro-finance factors using a MIDAS regression, the short-term effect follows a GAS process. Asymmetric dependence at different quantiles is also taken into account. We find that the proposed GAS MIDAS copula models are more effective in optimal portfolio allocation and improve the accuracy in risk management compared to other alternatives.
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| 10. |
- Asgharian, Hossein, et al.
(author)
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Evaluating the Importance of Missing Risk Factors Using the Optimal Orthogonal Portfolio Approach
- 2005
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In: Journal of Empirical Finance. - : Elsevier BV. - 0927-5398. ; 12:4, s. 556-575
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Journal article (peer-reviewed)abstract
- We apply the orthogonal portfolio approach to analyse the importance of risk factors potentially missing from the CAPM. We generalize the approach proposed by MacKinlay and Pastor (2000) [MacKinlay, A.C., Pastor, L., 2000. Asset pricing models: implications for expected returns and portfolio selection. Review of Financial Studies 13, 883–916] by estimating the Sharpe ratio of the optimal orthogonal portfolio. Our result, based on US industry portfolios for the period 1927–2002, reveals important risk factors missing from the CAPM during periods with high market volatility. We show that a priori fixing the Sharpe ratio, which is an assumption used by MacKinlay and Pastor (2000) [MacKinlay, A.C., Pastor, L., 2000. Asset pricing models: implications for expected returns and portfolio selection. Review of Financial Studies 13, 883–916], may produce less plausible estimates of the expected returns.
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