Volatility and Time Series Econometrics: Essays in Honor of Robert Engle (Advanced Texts in Econometrics)

432 Pages·2010·3.63 MB·English

by  Mark Waston

ADVANCED TEXTS IN ECONOMETRICS
Editors
Manuel Arellano Guido Imbens Grayham E. Mizon
Adrian Pagan Mark Watson
Advisory Editor
C. W. J. Granger
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Volatility and Time Series
Econometrics: Essays in Honor of
Robert F. Engle
Edited by
Tim Bollerslev, Jeffrey R. Russell,
and Mark W. Watson
1
3
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Volatilityandtimeserieseconometrics:essaysinhonorof
RobertF.Engle/editedbyMarkW.Watson,TimBollerslev,
andJeffreyR.Russell.
p. cm.—(Advancedtextsineconometrics)
ISBN 978-0-19-954949-8(hbk.)
1. Econometrics. 2. Time-seriesanalysis. I. Engle,R.F.(RobertF.)
II. Watson,MarkW. III. Bollerslev,Tim,1958-
IV. Russell,JeffreyR.
HB139.V65 2009
330.01(cid:2)51955—dc22 2009041065
TypesetbySPIPublisherServices,Pondicherry,India
PrintedinGreatBritain
onacid-freepaperby
CPIAntonyRowe,Chippenham,Wiltshire
ISBN 978-0-19-954949-8
1 3 5 7 9 10 8 6 4 2
Contents
Introduction x
1 A History of Econometrics at the University of California,
San Diego: A Personal Viewpoint 1
Clive W. J. Granger
1 Introduction 1
2 The Founding Years: 1974–1984 1
3 The Middle Years: 1985–1993 3
4 The Changing Years: 1994–2003 4
5 Graduate students 6
6 Visitors 6
7 Wives 8
8 The Econometrics Research Project 8
9 The UCSD Economics Department 8
10 The way the world of econometrics has changed 8
11 Visitors and students 9
2 The Long Run Shift-Share: Modeling the Sources of
Metropolitan Sectoral Fluctuations 13
N. Edward Coulson
1 Introduction 13
2 A general model and some specializations 14
3 Data and evidence 21
4 Summary and conclusions 33
3 The Evolution of National and Regional Factors in
US Housing Construction 35
James H. Stock and Mark W. Watson
1 Introduction 35
2 The state building permits data set 38
3 The DFM-SV model 45
v
vi Contents
4 Empirical results 49
5 Discussion and conclusions 60
4 Modeling UK Inflation Uncertainty, 1958–2006 62
Gianna Boero, Jeremy Smith, and Kenneth F. Wallis
1 Introduction 62
2 UK inflation and the policy environment 63
3 Re-estimating the original ARCH model 66
4 The nonstationary behavior of UK inflation 69
5 Measures of inflation forecast uncertainty 73
6 Uncertainty and the level of inflation 77
7 Conclusion 78
5 Macroeconomics and ARCH 79
James D. Hamilton
1 Introduction 79
2 GARCH and inference about the mean 81
3 Application 1: Measuring market expectations of what the
Federal Reserve is going to do next 87
4 Application 2: Using the Taylor Rule to summarize changes in
Federal Reserve policy 91
5 Conclusions 95
6 Macroeconomic Volatility and Stock Market Volatility,
World-Wide 97
Francis X. Diebold and Kamil Yilmaz
1 Introduction 97
2 Data 99
3 Empirical results 100
4 Variations and extensions 105
5 Concluding remark 109
7 Measuring Downside Risk – Realized Semivariance 117
Ole E. Barndorff-Nielsen, Silja Kinnebrock, and Neil Shephard
1 Introduction 117
2 Econometric theory 122
3 More empirical work 128
4 Additional remarks 131
5 Conclusions 133
Contents vii
8 Glossary to ARCH (GARCH) 137
Tim Bollerslev
9 An Automatic Test of Super Exogeneity 164
David F. Hendry and Carlos Santos
1 Introduction 164
2 Detectable shifts 166
3 Super exogeneity in a regression context 170
4 Impulse saturation 173
5 Null rejection frequency of the impulse-based test 175
6 Potency at stage 1 179
7 Super-exogeneity failure 181
8 Co-breaking based tests 186
9 Simulating the potencies of the automatic super-exogeneity test 186
10 Testing super exogeneity in UK money demand 190
11 Conclusion 192
10 Generalized Forecast Errors, a Change of Measure,
and Forecast Optimality 194
Andrew J. Patton and Allan Timmermann
1 Introduction 194
2 Testable implications under general loss functions 196
3 Properties under a change of measure 200
4 Numerical example and an application to US inflation 202
5 Conclusion 209
11 Multivariate Autocontours for Specification Testing
in Multivariate GARCH Models 213
Gloria Gonza´lez-Rivera and Emre Yoldas
1 Introduction 213
2 Testing methodology 215
3 Monte Carlo simulations 219
4 Empirical applications 224
5 Concluding remarks 230
12 Modeling Autoregressive Conditional Skewness and Kurtosis
with Multi-Quantile CAViaR 231
Halbert White, Tae-Hwan Kim, and Simone Manganelli
1 Introduction 231
2 The MQ-CAViaR process and model 232
viii Contents
3 MQ-CAViaR estimation: Consistency and asymptotic normality 234
4 Consistent covariance matrix estimation 237
5 Quantile-based measures of conditional skewness and kurtosis 238
6 Application and simulation 239
7 Conclusion 246
13 Volatility Regimes and Global Equity Returns 257
Luis Cata˜o and Allan Timmermann
1 Econometric methodology 261
2 Data 265
3 Global stock return dynamics 267
4 Variance decompositions 275
5 Economic interpretation: Oil, money, and tech shocks 281
6 Implications for global portfolio allocation 287
7 Conclusion 293
14 A Multifactor, Nonlinear, Continuous-Time Model of Interest
Rate Volatility 296
Jacob Boudoukh, Christopher Downing, Matthew Richardson, Richard
Stanton, and Robert F. Whitelaw
1 Introduction 296
2 The stochastic behavior of interest rates: Some evidence 298
3 Estimation of a continuous-time multifactor diffusion process 307
4 A generalized Longstaff and Schwartz (1992) model 313
5 Conclusion 321
15 Estimating the Implied Risk-Neutral Density for the
US Market Portfolio 323
Stephen Figlewski
1 Introduction 323
2 Review of the literature 325
3 Extracting the risk-neutral density from options prices, in theory 329
4 Extracting a risk-neutral density from options market prices,
in practice 331
5 Adding tails to the risk-neutral density 342
6 Estimating the risk-neutral density for the S&P 500 from S&P 500
index options 345
7 Concluding comments 352
Contents ix
16 A New Model for Limit Order Book Dynamics 354
Jeffrey R. Russell and Taejin Kim
1 Introduction 354
2 The model 356
3 Model estimation 358
4 Data 358
5 Results 360
6 Conclusions 364
Bibliography 365
Index 401