Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures

281 Pages·2011·2.71 MB·English

by  Greg N. Gregoriou

Financial Econometrics Modeling: Market
Microstructure, Factor Models and
Financial Risk Measures

Greg N. Gregoriou and Razvan Pascalau
GREGORIOU-2: “FM” — 2010/11/26 — 15:18 — PAGE i — #1
AlsobyGregN.GregoriouandRazvanPascalau
FINANCIALECONOMETRICSMODELING:DerivativesPricing,
HedgeFundsandTermStructureModels
NONLINEARFINANCIALECONOMETRICS:MarkovSwitchingModels,
PersistenceandNonlinearCointegration
NONLINEARFINANCIALECONOMETRICS:ForecastingModels,
ComputationalandBayesianModels

Greg N. Gregoriou and Razvan Pascalau
GREGORIOU-2: “FM” — 2010/11/26 — 15:18 — PAGE ii — #2
Financial Econometrics
Modeling: Market
Microstructure, Factor
Models and Financial
Risk Measures
Editedby
Greg N. Gregoriou
ProfessorofFinance,StateUniversityofNewYork(Plattsburgh)
ResearchAssociate,EDHECBusinessSchool,Nice,France
and
Razvan Pascalau
AssistantProfessorofEconomics,StateUniversityofNewYork(Plattsburgh)

Greg N. Gregoriou and Razvan Pascalau
GREGORIOU-2: “FM” — 2010/11/26 — 15:18 — PAGE iii — #3
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Greg N. Gregoriou and Razvan Pascalau
GREGORIOU-2: “FM” — 2010/11/26 — 15:18 — PAGE iv — #4
Contents
ListofTables vii
ListofFigures x
Acknowledgments xii
AbouttheEditors xiii
NotesonContributors xiv
ChapterAbstracts xviii
PartI MarketMicrostructureDynamics
1 CovarianceEstimationandDynamicAsset-Allocation
underMicrostructureEffectsviaFourierMethodology 3
MariaElviraMancinoandSimonaSanfelici
2 MarketLiquidity,StockCharacteristicsandOrder
Cancellations:TheCaseofFleetingOrders 33
BidishaChakrabartyandKonstantinTyurin
3 MarketMicrostructureoftheForeignExchangeMarkets:
EvidencefromtheElectronicBrokingSystem 66
YukoHashimotoandTakatoshiIto
4 TheIntradayAnalysisofVolatility,VolumeandSpreads:A
ReviewwithApplicationstoFutures’Markets 92
DeanFantazzini
PartII FactorModelsandFinancialRiskMeasures
5 TheConsumption-BasedCapitalAsset-PricingModel
(CCAPM),Habit-BasedConsumptionandtheEquity
PremiuminanAustralianContext 135
DavidE.AllenandLurionDemello
6 TestingtheLowerPartialMomentAsset-PricingModelsin
EmergingMarkets 154
JavedIqbal,RobertD.BrooksandDonU.A.Galagedera
v

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vi Contents
7 AssetPricing,theFama–FrenchFactorModelandthe
ImplicationsofQuantile-RegressionAnalysis 176
DavidE.Allen,AbhayKumarSinghandRobertPowell
8 TheValueofLiquidityandTradingActivityinForecasting
DownsideRisk 194
LidiaSanchis-MarcoandAntonioRubia
9 PortfolioSelectionwithTime-VaryingValue-at-Risk 213
ErickW.RengifoandJeroenV.K.Rombouts
10 ARiskandForecastingAnalysisofWestTexasIntermediate
Prices 235
DavidE.AllenandAbhayKumarSingh
Index 255

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Tables
1.1 Relativeandabsoluteerrorstatisticsforthein-sample
covarianceestimatesfordifferentestimatorsandnonoise 17
1.2 Relativeandabsoluteerrorstatisticsforthein-sample
covarianceestimatesfordifferentestimatorsanddifferent
noiselevels 18
1.3 OLSestimatesfromregressionsofrealintegrated
covarianceonaconstantandeachcovarianceforecast
overtheforecastinghorizonforω =0 21
ii
1.4 OLSestimatesfromregressionsofrealintegrated
covarianceonaconstantandeachcovarianceforecast
overtheforecastinghorizonforω1/2=0.002 22
ii
1.5 OLSestimatesfromregressionsofrealintegrated
covarianceonaconstantandeachcovarianceforecast
overtheforecastinghorizonforω1/2=0.004 23
ii
1.6 OLSestimatesfromregressionsofrealintegrated
covarianceonaconstantandeachcovarianceforecast
overtheforecastinghorizonforω1/2=0.004and
ii
dependentnoise 24
ˆ
1.7 AnnualizedfeesUC−UFourier (inbasispoints)thata
mean-varianceinvestorwouldbewillingtopaytoswitch
ˆ
fromCtofourierestimates 26
ˆ
1.8 AnnualizedfeesUC−UFourier (inbasispoints)thata
mean-varianceinvestorwouldbewillingtopaytoswitch
ˆ
fromCtofourierestimates 27
ˆ
1.9 AnnualizedfeesUC−UFourier (inbasispoints)thata
mean-varianceinvestorwouldbewillingtopaytoswitch
ˆ
fromCtofourierestimates 27
2.1 PricedecilesofNASDAQ100stocks 40
2.2 Cross-sectionalsummarystatisticsofdailyaverages 42
2.3 Timestoexecutionandcancellationforlimitorders 43
2.4 Probabilityofordercancellationsatvariouslevelsof
quoteaggressiveness 45
2.5 Correlationmatrixandprincipalcomponentsofcovariates 50
2.6 Cross-sectionalregressionanalysisformediantimesto
executionandmediantimestocancellation 54
2.7 Hazardratesofarrivalandcancellationforlimitordersat
thebestaskquotes 59
vii

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viii Tables
2.8 Hazardratesofarrivalandcancellationforlimitordersat
onetickawayfromthebestaskquotes 61
3.1 Foreignexchangeturnover 67
4.1 Numberofdatauseddividedperdayoftheweek 110
4.2 SP500ACDmodels’estimationresults 114
4.3 SP500ACDmodels’residuals’tests 115
4.4 NASDAQ100ACDmodels’estimationresults 116
4.5 NASDAQ100ACDmodels’residuals’tests 117
4.6 Z-statistictestestimatedwithACDmodelsresiduals 117
4.7 SP500UHF–GARCHmodels’estimationresults
(ModelsA,B,C,D) 119
4.8 SP500UHF–GARCHmodelsresidualstests 120
4.9 NASDAQ100UHF–GARCHmodelsestimationresults
(ModelsA,B,C,D) 121
4.10 10NASDAQ100UHF–GARCHmodels’residuals’tests 122
4.11 SP500orderedprobitestimationresults 126
4.12 NASDAQ100orderedprobitestimationresults 127
4.13 Generalizedresiduals’tests 128
4.14 j−th orderscorestatistictests 128
5.1 Parameterandbriefstatistics 146
5.2 Riskpremiumresults 148
5.3 OLSregressionforcollinearity 148
5.4 Grangercausalitytestforriskaversionpredicting
outputshocks 151
5.5 VolatilityofAustralianmarketportfolio 151
6.1 Testofmultivariatenormalityofasymmetricresponse
modelresiduals 167
6.2 Testofserialindependenceofasymmetric
responsemodelresiduals 167
6.3 Multivariatetestsofzero-betaCAPM 168
6.4 MultivariatetestsoflowerpartialmomentCAPM 169
6.5 Multivariatetestsofthenullhypothesisoftheblack
CAPMagainstthealternativeofthelowerpartial
momentmodel 170
7.1 DowJonesindustrial30stocksusedinthestudy 181
7.2 Fama–FrenchriskcoefficientsfromOLS 182
7.3 Fama–Frenchriskcoefficientsfromquantileregression
(0.05) 183
7.4 Fama–Frenchriskcoefficientsfromquantileregression
(0.95) 184
7.5 Two-samplet-testforthefittedlowertailvalues 190

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Tables ix
8.1 Descriptivestatisticsofthevariablesinvolvedinthe
analysis 201
8.2 Meanestimatesovertheout-of-sampleperiodof
symmetricabsolute-valueCAViaRmodelinequation(8.4) 202
8.3 Meanout-of-sampleestimatesofextendedCAViaR
modelsinequation(8.5) 203
8.4 Meanout-of-sampleestimatesofliquidity-extended
CAViaRmodelsinequation(8.5) 204
8.5 BacktestingVaRanalysisfortheEWMA,GARCHand
SAV–CAViaRmodels 207
8.6 BacktestingVaRanalysisforthetrading-extendedmodels 208
8.7 BacktestingVaRanalysisfortheliquidity-extendedmodel 209
9.1 Descriptivestatistics 223
9.2 ResultsforportfoliosmadeofRussell2000–SP500 226
9.3 Comparisonoffailurerates 231
9.4 ResultsforportfoliosmadeofRussell2000–SP500,using
MLwithrollingwindowoffixedsize 231
10.1 EstimatesforfourCAViaRspecifications
with1000returnseries 247
10.2 EstimatesforfourCAViaRspecifications
with2000returnseries 249
10.3 Estimatesforfourcaviarspecifications
with3000returnseries 250
10.4 ErrorsforARIMAmodels 251
10.5 PredictionstatisticsforARIMAmodel 252
10.6 SVRforecastingstatistics 253

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