A two-step generalized method of moments estimation procedure can be made robust to heteroskedasticity and autocorrelation in the data by using a nonparametric estimator of the optimal weighting matrix. This paper addresses the issue of choosing the corresponding smoothing parameter (or...

In this paper a new GARCH–M type model, denoted the GARCH-AR, is proposed. In particular, it is shown that it is possible to generate a volatility-return trade-off in a regression model simply by introducing dynamics in the standardized disturbance process. Importantly, the volatility in the...

Risk management and the thorough understanding of the relations between financial markets and the standard theory of macroeconomics have always been among the topics most addressed by researchers, both financial mathematicians and economists. This work aims at explaining investors' behavior from...

In this paper we develop an asymptotic theory for the Quasi-Maximum Likelihood Estimator (QMLE) of the parametric GARCH-in-Mean model. The asymptotics is based on a study of the volatility as a process of the model parameters. The proof makes use of stochastic recurrence equations for this...

This supplementary material for Estimating Jump-Diffusions Using Closed-form Likelihood Expansions contains (1) closed-form expansion formulas for the examples (Section 1), (2) proofs of the results in the appendices (Section 2), (3) expectation (D.4) under correlated normal distribution of jump...

We investigate the evidence for structural breaks in the parameters of autoregressive models of U.S. post-war macroeconomic time series. There is substantial model uncertainty associated with such models, including uncertainty related to lag selection, the number of structural changes, and the...

We develop estimation methodology for an additive nonparametric panel model that is suitable for capturing the pricing of coupon-paying government bonds followed over many time periods. We use our model to estimate the discount function and yield curve of nominally riskless government bonds. The...

Using an updated Japanese sample covering the 1975-2006 period, we reexamine whether it is Fama and French's (1993) three-factor model or Daniel and Titman's (1997) characteristic model that better explains stock returns in the Japanese market. In contrast to Daniel, Titman, and Wei (2001), we...

Two of the most important stylized facts well-known in finance relate to the non-Gaussian distribution and to the volatility clustering of stock returns. In this paper, we show that a new class of stochastic processes – called Multifractional Processes with Random Exponent (MPRE) – can...