The theoretical and empirical econometric literatures on long memory and regime switching have evolved largely independently, as the phenomena appear distinct. We argue, in contrast, that they are intimately related, and we substantiate our claim in several environments, including a simple...

We propose a portmanteau test for serial correlation of the error term in a fixed effects model. The test is derived as a conditional Lagrange multiplier test, but it also has a straightforward Wald test interpretation. In Monte Carlo experiments, the test displays good size and power properties

Following an influential article by Angrist and Krueger (1992) on two-sample instrumental variables (TSIV) estimation, numerous empirical researchers have applied a computationally convenient two-sample two-stage least squares (TS2SLS) variant of Angrist and Krueger's estimator. In the...

Volatility has been one of the most active areas of research in empirical finance and time series econometrics during the past decade. This chapter provides a unified continuous-time, frictionless, no-arbitrage framework for systematically categorizing the various volatility concepts,...

We consider the forecasting of cointegrated variables, and we show that at long horizons" nothing is lost by ignoring cointegration when forecasts are evaluated using standard multivariate" forecast accuracy measures. In fact, simple univariate Box-Jenkins forecasts are just as accurate. " Our...

We propose methods for evaluating density forecasts. We focus primarily on methods" that are applicable regardless of the particular user's loss function. We illustrate the methods" with a detailed simulation example, and then we present an application to density forecasting of" daily stock...

We propose a measure of predictability based on the ratio of the expected loss of a short-run forecast to the expected loss of a long-run forecast. This predictability measure can be tailored to the forecast horizons of interest, and it allows for general loss functions, univariate or...

The possibility of exact maximum likelihood estimation of many observation-driven models remains an open question. Often only approximate maximum likelihood estimation is attempted, because the unconditional density needed for exact estimation is not known in closed form. Using simulation and...

It is obvious that forecasts are of great importance and widely used in economics and finance. Quite simply, good forecasts lead to good decisions. The importance of forecast evaluation and combination techniques follows immediately -- forecast users naturally have a keen interest in monitoring...

Many recent theoretical papers have come under attack for modeling prices as Geometric Brownian Motion. This process can diverge over time, implying that firms facing this price process can earn infinite profits. We explore the significance of this attack and contrast investment under Geometric...