Search Results
Journal Article
Cross-country personal saving rates
Working Paper
Predictions of short-term rates and the expectations hypothesis
Despite its role in monetary policy and finance, the expectations hypothesis (EH) of the term structure of interest rates has received virtually no empirical support. The empirical failure of the EH was attributed to a variety of econometric biases associated with the single-equation models most often used to test it, although no bias seems to account for the extent and magnitude of the failure. This paper analyzes the EH by focusing on the predictability of the short-term rate. This is done by comparing h-month ahead forecasts for the 1- and 3-month Treasury bill yields implied by the EH ...
Working Paper
Does the macroeconomy predict U.K. asset returns in a nonlinear fashion? comprehensive out-of-sample evidence
We perform a comprehensive examination of the recursive, comparative predictive performance of a number of linear and non-linear models for UK stock and bond returns. We estimate Markov switching, threshold autoregressive (TAR), and smooth transition autoregressive (STR) regime switching models, and a range of linear specifications in addition to univariate models in which conditional heteroskedasticity is captured by GARCH type specifications and in which predicted volatilities appear in the conditional mean. The results demonstrate that U.K. asset returns require non-linear dynamics be ...
Journal Article
The dollar U-turn
Working Paper
Modelling the MIB30 implied volatility surface. Does market efficiency matter?
We analyze the volatility surface vs. moneyness and time to expiration implied by MIBO options written on the MIB30, the most important Italian stock index. We specify and fit a number of models of the implied volatility surface and find that it has a rich and interesting structure that strongly departs from a constant volatility, Black-Scholes benchmark. This result is robust to alternative econometric approaches, including generalized least squares approaches that take into account both the panel structure of the data and the likely presence of heteroskedasticity and serial correlation in ...
Journal Article
The effects of large-scale asset purchases on TIPS inflation expectations
Large-scale asset purchases may have limited power to raise TIPS-implied inflation expectations?something that might appeal to policymakers fighting deflation.
Journal Article
Is the financial crisis over? a yield spread perspective
Our finding is consistent with some recent, substantial volatility in the U.S. corporate bond market and leaves open a possibility that additional, future shocks to default premia may have long-lived effects.
Working Paper
Can VAR models capture regime shifts in asset returns? a long-horizon strategic asset allocation perspective
In the empirical portfolio choice literature it is often invoked that through the choice of predictors that may closely track business cycle conditions and market sentiment, simple Vector Autoregressive (VAR) models could produce optimal strategic portfolio allocations that hedge against the bull and bear dynamics typical of financial markets. However, a distinct literature exists that shows that non-linear econometric frameworks, such as Markov switching, are also natural tools to compute optimal portfolios arising from the existence of good and bad market states. In this paper we examine ...
Journal Article
Is the bond market irrational?
Working Paper
Non-linear predictability in stock and bond returns: when and where is it exploitable?
We systematically examine the comparative predictive performance of a number of alternative linear and non-linear models for stock and bond returns in the G7 countries. Besides Markov switching, threshold autoregressive (TAR), and smooth transition autoregressive (STAR) regime switching (predictive) regression models, we also estimate univariate models in which conditional heteroskedasticity is captured through GARCH, TARCH and EGARCH models and ARCH-in mean effects appear in the conditional mean. Although we fail to find a consistent winner/out-performer across all countries and asset ...