Financial Econometrics

138 Pages·2019·8.963 MB·English

by  Yiu-Kuen Tse (editor)

Journal of
Financial
Econometrics
Edited by
Yiu-Kuen Tse
Printed Edition of the Special Issue Published in
Journal of Risk and Financial Management
www.mdpi.com/journal/jrfm
Financial Econometrics

Financial Econometrics
SpecialIssueEditor
Yiu-KuenTse
MDPI•Basel•Beijing•Wuhan•Barcelona•Belgrade
SpecialIssueEditor
Yiu-KuenTse
SingaporeManagementUniversity
Singapore
EditorialOffice
MDPI
St.Alban-Anlage66
4052Basel,Switzerland
This is a reprint of articles from the Special Issue published online in the open access journal
JournalofRiskandFinancialManagement (ISSN 1911-8074) form 2018 to 2019 (available at: https://
www.mdpi.com/journal/jrfm/specialissues/financialeconometrics)
Forcitationpurposes,citeeacharticleindependentlyasindicatedonthearticlepageonlineandas
indicatedbelow:
LastName,A.A.; LastName,B.B.; LastName,C.C.ArticleTitle. JournalNameYear,ArticleNumber,
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(cid:2)c 2019bytheauthors. ArticlesinthisbookareOpenAccessanddistributedundertheCreative
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Contents
AbouttheSpecialIssueEditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Yiu-KuenTse
EditorialfortheSpecialIssueonFinancialEconometrics
Reprintedfrom:J.RiskFinancialManag.2019,12,153,doi:10.3390/jrfm12030153. . . . . . . . . . 1
AndersEriksson,DanielP.A.PreveandJunYu
ForecastingRealizedVolatilityUsingaNonnegativeSemiparametricModel
Reprintedfrom:J.RiskFinancialManag.2019,12,139,doi:10.3390/jrfm12030139. . . . . . . . . . 3
MuhammadFaridAhmedandStephenSatchell
SomeDynamicandSteady-StatePropertiesofThresholdAuto-RegressionswithApplications
toStationarityandLocalExplosivity
Reprintedfrom:J.RiskFinancialManag.2019,12,123,doi:10.3390/jrfm12030123 . . . . . . . . . 26
HuiXiaoandYiguoSun
OnTuningParameterSelectioninModelSelectionandModelAveraging:AMonteCarloStudy
Reprintedfrom:J.RiskFinancialManag.2019,12,109,doi:10.3390/jrfm12030109. . . . . . . . . . 44
ZhongxianMen,AdamW.KolkiewiczandTonyS.Wirjanto
ThresholdStochasticConditionalDurationModelforFinancialTransactionData
Reprintedfrom:J.RiskFinancialManag.2019,12,88,doi:10.3390/jrfm12020088 . . . . . . . . . . 60
ConstantinoHeviaandMartinSola
BondRiskPremiaandRestrictionsonRiskPrices†
Reprintedfrom:J.RiskFinancialManag.2018,11,60,doi:10.3390/jrfm11040060 . . . . . . . . . . 81
GalynaGrynkivandLarsStentoft
StationaryThresholdVectorAutoregressiveModels
Reprintedfrom:J.RiskFinancialManag.2018,11,45,doi:10.3390/jrfm11030045 . . . . . . . . . . 103
v

About the Special Issue Editor
Yiu-KuenTseisaProfessorofEconomicsattheSingaporeManagementUniversity. Hisresearch
interests are in econometric methodology, financial econometrics, risk management, and actuarial
science. He is currently working on a high-frequency estimation of large dimensional covariance
matrices, aswellasseveraltopicsonempiricalinternationalfinance. Hehaspublishedapopular
textbookentitled‘’NonlifeActuarialModels”.
vii

Journal of
Risk and Financial
Management
Editorial
Editorial for the Special Issue on
Financial Econometrics
Yiu-KuenTse
SchoolofEconomics,SingaporeManagementUniversity,Singapore178903,Singapore;[email protected]
Received:16September2019;Accepted:17September2019;Published:19September2019
Financialeconometricshasdevelopedintoaveryfruitfulandvibrantresearchareainthelast
twodecades.Theavailabilityofgooddatapromotesresearchinthisarea,speciallyaidedbyonline
dataandhigh-frequencydata. Thesetwocharacteristicsoffinancialdataalsocreatechallengesfor
researchersthataredifferentfromclassicalmacro-econometricandmicro-econometricproblems.
Thisspecialissueisdedicatedtoresearchtopicsthatarerelevantforanalyzingfinancialdata.
Wehavegatheredsixarticlesunderthistheme. ThepaperbyErikssonetal. (2019)considersa
methodtoforecastrealizedvolatilityusingaclassicalautoregressivemodel.Twomodificationsare
adoptedtomakethismodelsuitablefornonnegativevaluedvariableslikevolatility.First,theyapply
Tukey’spowertransformationtotheirdata.Second,theyallowtheerrordistributiontobeunspecified,
resultinginasemiparametricapproach.Whiletheirmodelhasforecastingvolatilityastheprimary
motivation,itcanbeusedformanynonnegativevaluedvariables,thusextendingtheapplicabilityof
theirapproach.
TheempiricalstudyofErikssonetal.(2019)showsthattheirmethodcomparesverywellagainst
someofthemostcommonlyusedforecastingmodelsforvolatilityintermsofpost-sampleprediction.
Asmentionedintheirconcludingremarks,itwillbeinterestingtoseehowtheirapproachworksfor
intra-daydataandmultivariatemodels.
AhmedandSatchell(2019)considerathresholdautoregressivemodelwithMarkovianstates.
Thesestatesmayincorporatebothexplosiveandstationaryregimes.Theyinvestigatethecharacteristic
functionofthisprocessandderiveanalyticformulafortheirmoments.Theirapproachcanbeapplied
toprocessesforwhichthemomentgeneratingfunctiondoesnotexist. Thus,certainassetpricing
modelswithnon-normalerrorscanbeanalyzed.
XiaoandSun(2019)investigatetheestimationofthetuningparameterformodelselectionand
averaging.IncorporatingtheshrinkageaveragingestimatormethodandMallow’smodelaveraging
method, theyproposetheshrinkagemodelaveragingmethod, whichcanbeusedforaveraging
high-dimensionalsparsemodels.Themethodisapplicabletoawiderangeofeconometricmodels,
andextendsbeyondthefinancialeconometricsarena.TheirMonteCarlostudyshowsthattheirnew
methodperformswellagainstothermethodsinaveraginghigh-dimensionalsparsemodels.
Menetal.(2019)proposeathresholdstochasticconditionaldurationmodelthatcanbeusedto
analyzetransactionfinancialdata. TheyassumealatentAR(1)model,whichmayswitchbetween
tworegimes.Theregimesareself-excitedandarebasedontheobservedduration.Themodelcanbe
estimatedefficientlyusingaMarkov-ChainMonteCarloapproach.Theirempiricalexamplessupport
thedesirableperformanceoftheirnewmodelinforecastingtransactionduration.
HeviaandSola(2018)examinetheeffectofimposingover-identifyingrestrictionsonaffineterm
structuremodels. Inparticular,theyinvestigatetheeffectsofinappropriaterestrictionsonsome
riskmeasures. Theyarguethatincertaincases,suchrestrictionsmayhaveasignificantimpacton
theestimatedriskpremium,anditisdifficulttoascertainapriorithelikelyoutcome. Duetothis
uncertainty,theyrecommendusingjust-identifiedmodelswhenthepurposeistoapplytheaffine
modelstocomputetheriskpremium.
JRFM2019,12,153;doi:10.3390/jrfm12030153 1 www.mdpi.com/journal/jrfm