We provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage ef fect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and implied volatility and find that implied volatilities are...

In this paper, we provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage effect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and implied volatility, and find that implied...

We propose a nonparametric estimation and inference for conditional density based Granger causality measures that quantify linear and nonlinear Granger causalities. We first show how to write the causality measures in terms of copula densities. Thereafter, we suggest consistent estimators for...

We model portfolio weights as a function of latent factors that summarize the information in a large number of economic variables. This approach (hereafter diffusion index approach) offers the opportunity to exploit a much richer information base to improve portfolio selection. We use factor...

We study risk assessment using an optimal portfolio in which the weights are functions of latent factors and firm-specific characteristics (hereafter, diffusion index portfolio). The factors are used to summarize the information contained in a large set of economic data and thus reflect the...

The reaction of EU bond and equity market volatilities to sovereign rating announcements (Standard & Poor’s, Moody’s, and Fitch) is investigated using a panel of daily stock market and sovereign bond returns. The parametric volatilities are defined using EGARCH specifications. The estimation...

We use a Fourier transform to derive multivariate conditional and unconditional moments of multi-horizon returns under a regime-switching model. These moments are applied to examine the relevance of risk horizon and regimes for buy-and-hold investors. We analyze the impact of time-varying...

This paper proposes a new nonparametric test for conditional independence, which is based on the comparison of Bernstein copula densities using the Hellinger distance. The test is easy to implement because it does not involve a weighting function in the test statistic, and it can be applied in...

Copulas are extensively used for dependence modeling. In many cases the data does not reveal how the dependence can be modeled using a particular parametric copula. Nonparametric copulas do not share this problem since they are entirely data based. This paper proposes nonparametric estimation of...

This paper proposes a new nonparametric test for conditional independence, which is based on the comparison of Bernstein copula densities using the Hellinger distance. The test is easy to implement because it does not involve a weighting function in the test statistic, and it can be applied in...