We explore the dynamic effects of news about a future technology improvement which turns out ex post to be overoptimistic. We find that it is difficult to generate a boom-bust cycle (a period in which stock prices, consumption, investment and employment all rise and then crash) in response to...

We explore the dynamic effects of news about a future technology improvement which turns out ex post to be overoptimistic. We find that it is difficult to generate a boom-bust cycle (a period in which stock prices, consumption, investment and employment all rise and then crash) in response to...

We estimate forward-looking interest rate reaction functions in the spirit of Taylor (1993) for four major central banks augmented by implicit volatilities of stock market indices to proxy financial market stress. Our results suggest that the Bank of England, the Federal Reserve Bank and the...

The paper describes the specification, estimation, and testing of an unrestricted structural econometric model design to explain and forecast individual returns of securities listed on the Brazilian stock market. The model's explanatory variables include macroeconomic, fundamental and...

The approximate long memory Heterogeneous Autoregressive (HAR) model proposed by Corsi is extended in order to account for leverage effects in the realized volatility process and the long memory of the conditional variance of the HAR residuals. The proposed model is estimated using ten years of...

Portfolio sorting is ubiquitous in the empirical finance literature, where it has been widely used to identify pricing anomalies in different asset classes. Despite the popularity of portfolio sorting, little attention has been paid to the statistical properties of the procedure or to the...

This paper extends the stochastic conditional duration model first proposed by Bauwens and Veredas (2004) by imposing mixtures of bivariate normal distributions on the innovations of the observation and latent equations of the duration process. This extension allows the model not only to capture...

Asset pricing tests often replace ex ante return expectation with ex post realization. The large deviation between the two drastically weakens the power of these tests. This paper proposes to use analysts consensus price target for a stock as the market expectation of the stock's future price to...

We investigate price duration variance estimators that have long been neglected in the literature. We show i) how price duration estimators can be used for the estimation and forecasting of the integrated variance of an underlying semi-martingale price process and ii) how they are affected by a)...

This chapter surveys recent econometric methodologies for inference in large dimensional conditional factor models in finance. Changes in the business cycle and asset characteristics induce time variation in factor loadings and risk premia to be accounted for. The growing trend in the use of...