In this paper prediction-based estimating functions (PBEFs), introduced in Sørensen (2000), are reviewed and PBEFs for the Heston (1993) stochastic volatility model are derived. The finite sample performance of the PBEF based estimator is investigated in a Monte Carlo study, and compared to the...

The properties of dynamic conditional correlation (DCC) models are still not entirely understood. This paper fills one of the gaps by deriving weak diffusion limits of a modified version of the classical DCC model. The limiting system of stochastic differential equations is characterized by a...

We propose a parametric state space model with accompanying estimation and forecasting framework that combines long memory and level shifts by decomposing the underlying process into a simple mixture model and ARFIMA dynamics. The Kalman filter is used to construct the likelihood function after...

This paper studies cointegration in non-linear error correction models characterized by discontinuous and regime-dependent error correction and variance specifications. In addition the models allow for autoregressive conditional heteroscedasticity (ARCH) type specifications of the variance. The...

Semiparametric models are characterized by a finite- and infinite-dimensional (functional) component. As such they allow for added flexibility over fully parametric models, and at the same time estimators of parametric components can be developed that exhibit standard parametric convergence...

We address the IGARCH puzzle by which we understand the fact that a GARCH(1,1) model fitted by quasi maximum likelihood estimation to virtually any financial dataset exhibit the property that alpha^hat + beta^hat is close to one. We prove that if data is generated by certain types of continuous...

In this paper we analyze the limiting properties of the estimated parameters in a general class of asymmetric volatility models which are closely related to the traditional exponential GARCH model. The new representation has three main advantages over the traditional EGARCH: (1) It allows a much...

Using a CCAPM based risk adjustment model, consistent with general asset pricing theory, I perform corporate valuations of a large sample of stocks listed on NYSE, AMEX and NASDAQ. The model is different from the standard CAPM model in the sense that it discounts forecasted residual income for...

Motivated by the implications from a stylized equilibrium pricing framework, we investigate empirically how individual equity prices respond to continuous, or \smooth," and jumpy, or \rough," market price moves, and how these different market price risks, or betas, are priced in the...

We develop a new methodology for estimating time-varying factor loadings and conditional alphas based on nonparametric techniques. We test whether long-run alphas, or averages of conditional alphas over the sample, are equal to zero and derive test statistics for the constancy of factor...