evidence of nonlinearity in daily stock returns this article applies a newly developed statistical technique to time series of daily rates of return of 15 common stocks the technique involves estimating the bispectrum of the observed time series the bispectrum is defined as the double fourier transform of the third order cumulant function if the process generating rates of return is linear with independent innovations then the skewness of the bispectrum will be constant the article describes a test that can detect nonconstant skewness in the bispectrum hence if the test rejects constant skewness a nonlinear process is implied as a consequence the test can distinguish between white noise and purely random noise the results suggest that daily stock returns are generated by a nonlinear process

agricultural price instability a survey of competing explanations and remedies there are two explanations for agricultural price dynamics one follows cobweb logic and models fluctuations driven by expectation errors but emphasises that these expectations create complex dynamics and possibly chaos the other stems from the rational expectations tradition of dynamics driven by real shocks the empirical evidence tends to support the latter but is not conclusive the rational expectations model generates an optimal dynamic path from which no improvement can be expected from public intervention however if we take account of all the potential market failures in agricultural markets and especially in developing countries this conclusion might require some qualifications although an appropriate policy design for stability has still to be achieved this paper surveys the positive and normative literature on agricultural prices highlighting empirical evidence and identifying remaining unresolved issues

stochastic dominance decision rules when the attributes are utility independent in multivariate decisions under risk assessing the complete utility function can be a major obstacle decision rules are investigated which characterize uniformly better alternatives with respect to a whole class of utility functions in this paper independence assumptions are imposed on the preference structure while the levels of attributes may be stochastically dependent in an arbitrary way the utilities considered are additive multiplicative or multilinear necessary and sufficient conditions are developed for uniform decisions over utilities with common substitutional structure and where the univariate conditional utilities show qualitative properties such as risk aversion the rules are direct extensions of known univariate rules and easy to evaluate

models of stock returns a comparison in this paper a discrete mixture of normal distributions is proposed to explain the observed significant kurtosis fat tails and significant positive skewness in the distribution of daily rates of returns for a sample of common stocks and indexes stationarity tests on the parameter estimates of this discrete mixture of normal distributions model revealed significant differences in the mean estimates that can explain the observed skewness and significant differences in the variance estimates that can explain the observed kurtosis an alternative explanation for the observed fat tails is the symmetric student model the result of a comparison between the models is that the discrete mixture of normal distributions model has substantially more descriptive validity than the student model for many years both financial economists and statisticians have been concerned with the description of stock market returns the form of the distribution of stock returns is a crucial assumption for mean variance portfolio theory theoretical models of capital asset prices and the prices of contingent claims for example understanding the behavior of the variance is essential to option pricing models empirical tests of asset pricing models and the efficient markets hypothesis draw statistical inferences that are also conditional on distributional assumptions the most convenient assumption for financial theory and empirical methods is that the distribution of security rates of return be multivariate normal with parameters that are stationary over time since the normal distribution is stable under addition any arbitrary portfolio of stocks will also be normally distributed with the additional assumption of risk aversion mean variance theory follows furthermore the assumptions of normality and parameter stationarity are required for most of the econometric techniques typically used in empirical research tests of the normality hypothesis on the daily returns of the dow jones industrial stocks by fama 121 revealed more kurtosis fatter tails than that predicted from a sample of independent and identically distributed normal variates fama concluded from this evidence that the distribution of price changes conforms better to the stable paretian distribution with characteristic exponent

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

multivariate decisions with unknown price vector abstract we consider a class of decision makers who have to choose among different random bundles of commodities it is assumed that they maximize expected utility and their utility functions depend only on the monetary value of the bundles of commodities stochastic dominance conditions are provided when the price vector is assumed unknown risk aversion and constraints on the price vectors are considered as particular cases the results are compared with other approaches to multivariate decisions

evaluation of the subjective probabilities of survival in the health and retirement study in the health and retirement study respondents were asked about the chances they would live to 75 or to 85 we analyze these responses to determine if they behave like probabilities of survival if their averages are close to average probabilities in the population and if they have correlations with other variables that are similar to correlations with actual mortality outcomes we find that generally they do behave like probabilities and that they do aggregate to population probabilities most remarkable however is that they covary with other variables in the same way actual outcomes vary with the variables for example respondents with higher socioeconomic status give higher probabilities of survival whereas respondents who smoke give lower probabilities we conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty

normal mixture diffusion with uncertain volatility modelling short and long term smile effects this paper introduces a parameterization of the normal mixture diffusion nmd local volatility model that captures only a short term smile effect and then extends the model so that it also captures a long term smile effect we focus on the binomial nmd parameterization so called because it is based on simple and intuitive assumptions that imply the mixing law for the normal mixture log price density is binomial with more than two possible states for volatility the general parameterization is related to the multinomial mixing law in this parsimonious class of complete market models option pricing and hedging is straightforward since model prices and deltas are simple weighted averages of black scholes prices and deltas but they only capture a short term smile effect where leptokurtosis in the log price density decreases with term in accordance with the stylised facts of econometric analysis on ex post returns of different frequencies and the central limit theorem however the last part of the paper shows that longer term smile effects that arise from uncertainty in the local volatility surface can be modeled by a natural extension of the binomial nmd parameterization results are illustrated by calibrating the model to several euro us dollar currency option smile surfaces

the statistical properties of daily foreign exchange rates 1974 1983 abstract this paper examines the statistical properties of daily rates of change of five foreign currencies from 1974 to 1983 the main purpose is to discriminate between two competing explanations for the observed heavy tails of the distribution that the data are independently drawn from a heavy tail distribution which remains fixed over time and that the data come from distributions which vary over time evidence point to the rejection of the first hypothesis further investigations show that the rejection can be attributed to changing means and variances in the data which can be described by a simple statistical model

var methods for the dynamic impawn rate of steel in inventory financing under autocorrelative return abstract this paper proposes the way of setting the dynamic impawn rate by dividing the impawn periods into different risk windows in an efficient financial market the return is hypothetically independent while in a pledged inventory market where spot transactions predominate the return is auto correlative therefore the key to setting the impawn rate is to predict the long term risk in this experiment using the database of spot steel we established a model with the formula ar 1 garch 1 1 ged forecasting the var of steel during the different risk windows in the impawn period through a method of out of sample and got the impawn rate according with the risk exposure of banks the results of our experiment indicated that the introduction of coefficient k into the model can significantly improve bank risk coverage and reduce its efficiency loss besides the impawn rate obtained by the model correlates positively with the lowest price in the future risk windows

market efficiency in agricultural futures markets market efficiency and unbiasedness are tested in four agricultural commodity futures markets live cattle hogs corn and soybean meal using cointegration and error correction models with gqarch in mean processes results indicate each market is unbiased in the long run although cattle hogs and corn futures markets exhibit short run inefficiencies and pricing biases models for cattle and corn outperform futures prices in out of sample forecasting results also suggest short run time varying risk premiums in cattle and hog futures markets

primary commodity prices co movements common factors and fundamentals the behavior of commodities is critical for developing and developed countries alike this paper contributes to the empirical evidence on the co movement and determinants of commodity prices using nonstationary panel methods we document a statistically significant degree of co movement due to a common factor within a factor augmented var approach real interest rate and uncertainty as postulated by a simple asset pricing model are both found to be negatively related to this common factor this evidence is robust to the inclusion of demand and supply shocks which both positively impact on the co movement of commodity prices

a class of nonlinear arch models a class of nonlinear arch models is suggested the proposed class encompasses several functional forms for arch which have been put forth in the literature a lagrange multiplier test is developed to test engle s arch specification against the wider class of models this test provides an easily computed diagnostic check of the adequacy of an arch model after it has been estimated the theory is applied to a number of weekly exchange rate series and we find strong evidence of nonlinear arch

co movement of major energy agricultural and food commodity price returns a time series assessment abstract using monthly data between 1970 and 2013 we provide a comprehensive analysis of the extent of co movement measured by correlation coefficients among the nominal price returns of 11 major energy agricultural and food commodities we study the degree and the time evolution of unconditional and conditional correlations using a uniform spacings estimation and testing approach multivariate dynamic conditional correlation models and a rolling regression procedure we find that 1 the price returns of energy and agricultural commodities are highly correlated 2 the overall level of co movement among commodities increased in recent years especially between energy and agricultural commodities and in particular in the cases of maize and soybean oil which are important inputs in the production of biofuels and 3 the stock market volatility is positively associated with the co movement of price returns across markets especially after 2007

the statistical distribution of exchange rates empirical evidence and economic implications the abundant evidence that changes in exchange rates have distributions with fatter tails than the normal distribution has led researchers to consider non normal distributions including the student the stable paretian and mixtures of distributions this paper compares the empirical fits of three non normal candidates and the normal distribution for daily changes in the logarithms of exchange rates using maximum likelihood estimation of the parameters and chi square goodness of fit tests the student and mixture of two normals provide the best fits but there is evidence that the distribution parameters may vary over time

sensitivity of the bank stock returns distribution to changes in the level and volatility of interest rate a garch m model abstract the objective of this paper is to employ the generalized autoregressive conditionally heteroskedastic in the mean garch m methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process this framework discards the restrictive assumptions of linearity independence and constant conditional variance in modeling bank stock returns the model presented here allows for shifts in the volatility equation in response to the changes in monetary policy regime in 1979 and 1982 to be estimated arch garch and volatility feed back effects are found to be significant interest rate and interest rate volatility are found to directly impact the first and the second moments of the bank stock returns distribution respectively the latter also affects the risk premia indirectly the degree of persistence in shocks is substantial for all the three bank portfolios and sensitive to the nature of the bank portfolio and the prevailing monetary policy regime

the cross sectional relation between conditional heteroskedasticity the implied volatility smile and the variance risk premium abstract this paper estimates how the shape of the implied volatility smile and the size of the variance risk premium relate to parameters of garch type time series models measuring how conditional volatility responds to return shocks markets in which return shocks lead to large increases in conditional volatility tend to have larger variance risk premia than markets in which the impact on conditional volatility is slight markets in which negative positive return shocks lead to larger increases in future volatility than positive negative return shocks tend to have downward upward sloping implied volatility smiles also differences in how volatility responds to return shocks as measured by garch type models explain much but not all of the variations in excess kurtosis and multi period skewness across different markets

do macro economic news announcements affect the volatility of foreign exchange rates some evidence from australia this paper investigates the role of australian macro economic announcement news on five major australian dollar aud exchange rates specifically the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news effects in the conditional mean and variance of the changes it is found that a higher than expected current account deficit and unemployment rate announcements depreciated the aud and an unexpectedly higher gdp growth announcement appreciated it current account deficit cpi and unemployment news announcements significantly raised the conditional volatility of the changes of the aud on the days of their announcements except for the bp aud for the cpi news and there is some evidence of retail sales news reducing it in general the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the effects of the particular news announcement and the necessary course of action in add

a multivariate analysis of forecast disagreement confronting models of disagreement with survey data abstract this paper documents multivariate forecast disagreement among professional forecasters and discusses implications for models of heterogeneous expectation formation disagreement varies over time and is positively correlated with general economic uncertainty the degree to which individual forecasters disagree with the average forecast tends to persist over time models of heterogeneous expectation formation can be modified by introducing heterogeneous signal to noise ratios to match this feature furthermore disagreement about correlations of different macroeconomic variables is high on average in general multivariate forecast data can be used more effectively than it has been to estimate models with heterogeneous expectations and to test the mechanisms used to generate disagreement in these models

the relationships among expected inflation disagreement and uncertainty evidence from matched point and density forecasts abstract this paper examines matched point and density forecasts of inflation from the survey of professional forecasters to analyze the relationships among expected inflation disagreement and uncertainty we undertake the empirical analysis within a seemingly unrelated regression framework and derive measures of uncertainty using a decomposition proposed by wallis 2004 2005 and by drawing on the concept of entropy the results offer little evidence that disagreement is a useful proxy for uncertainty and mixed evidence that increases in expected inflation are accompanied by heightened uncertainty conversely we document a quantitatively and statistically significant positive association between disagreement and expected inflation

risk behavior and rational expectations in the u s broiler market this study examines the empirical implications of extending the rational expectations hypothesis reh to include price uncertainty a general estimation framework that incorporates both the restrictions on structural parameters and the variance covariance terms is developed garch time series processes are used to generate time varying expectations of both the means and the variances of exogenous variables the empirical application is with a quarterly model of the u s broiler industry the results indicate that the rational expectation of price variance is an important determinant of broiler supply a formal test indicates that the restrictions implied by the reh cannot be rejected

inflation expectations and behavior do survey respondents act on their beliefs we compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment the survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment more importantly we find evidence that most respondents act on their inflation expectations showing patterns consistent with economic theory respondents whose behavior cannot be rationalized tend to have lower education and lower numeracy and financial literacy these findings help confirm the relevance of inflation expectations surveys and provide support to the microfoundations of modern macroeconomic models

how much of commodity price behavior can a rational expectations storage model explain a rational expectations competitive storage model was applied to the u s corn market to assess the aptness of this framework in explaining monthly price behavior in an actual commodity market relative to previous models extensive realism was added to the model in terms of how production activities and storage costs are specified by modeling convenience yield backwardation in prices between crop years did not depend on the unrealistic assumption of zero ending stocks our model generated cash prices that were distributed with positive skewness and kurtosis and mean and variance that increased over the storage season comparable to the persistence and the occasional spikes observed in commodity prices futures prices were generated as conditional expectations of cash prices at contract maturity and the variances of futures prices exhibited realistic time to maturity and seasonal patterns model realizations of cash and futures prices over many years were used to demonstrate the wide variety of price behaviors that could be observed in an efficient market with a similar market structure implying that economic and policy implications drawn from short historical samples of prices could be misleading

modelling the impact of central bank intervention on exchange rate volatility under inflation targeting this article empirically investigates the effect of central bank s foreign exchange interventions on the level and volatility of the uganda shilling us dollar exchange rate ugx usd under an infla

biofuel related price transmission literature a review abstract in this article an extensive review of the rapidly growing biofuel related time series literature is carried out the data used the modeling techniques and the main findings of this literature are discussed providing a review of this flourishing research area is relevant as a guidepost for future research this literature concludes that energy prices drive long run agricultural price levels and that instability in energy markets is transferred to food markets

the empirical merit of structural explanations of commodity price volatility review and perspectives this paper presents both the history of and state of the art in empirical modeling approaches to the world commodity price volatility the analysis builds on the storage model and key milestones in its development specifically it is intended to offer a reader unfamiliar with the relevant literature an insight into the modeling issues at stake from both a historical and speculative viewpoint the review considers primarily the empirical techniques designed to assess the merits of the storage theory it does not address purely statistical approaches that do not rely on storage theory and that have been studied in depth in other streams of the commodity price literature the paper concludes with some suggestions for future research to try to resolve some of the existing empirical flaws and hopefully to increase the explanatory power of the storage model

a rational expectations model of time varying risk premia in commodities futures markets theory and evidence the intertemporal hedging theory is used to model the role of spot price risk measured by the variance in futures market risk premia the model gives a theoretical basis for treating the variance as serially correlated when commodities are storable t he rational expectations hypothesis implies that agents use the varianc e process to predict risk therefore the expected variance should be incorporated in equilibrium risk premia tests on data from four commodity markets show that variances do have predictable components however premia are related to expected variances in only one market copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

macro determinants of volatility and volatility spillover in energy markets abstract we analyze the time varying volatility and spillover effects in crude oil heating oil and natural gas futures markets by incorporating changes in important macroeconomic variables and major political and weather related events into the conditional variance equations we allow asymmetric responses to random disturbances in each market as well as to good and bad economic news related to the overall economy results show the presence of asymmetric effects in both random disturbances and macroeconomic variables a bidirectional volatility spillover effect is found between natural gas and crude oil and between the natural gas and heating oil markets crude oil volatility is found to increase following major political financial and natural events seasonality and day of the week effects are found in the crude oil and heating oil markets

forecasting realized volatility with linear and nonlinear univariate models in this paper we consider a nonlinear model based on neural networks as well as linear models to forecast the daily volatility of the s p 500 and ftse 100 futures as a proxy for daily volatility we consider a consistent and unbiased estimator of the integrated volatility that is computed from high frequency intraday returns we also consider a simple algorithm based on bagging bootstrap aggregation in order to specify the models analysed in this paper

modeling expectations of bounded prices an application to the market for corn the presence of farm programs should directly affect the expectations of producers this paper analyzes the formation of price expectations when price supports constitute an effective lower bound on the distribution of the expectations we first investigate what the expected price would be if the usual rational expectations formula is used this leads to a relationship that is not estimable we suggest two alternatives one based on a tobit approximation and the other based on a perfect prediction of when the support is going to be effective using a simplified model of the u s corn market the methodology is demonstrated and compared to an alternative method of using futures prices as the expectation of harvest price the analysis of supply response for the major u s field crops is made difficult due to government intervention in these markets this intervention has been characterized by the use of price supports acreage diversion storage incentives etc during the last thirty years many studies have analyzed producer behavior in the presence of governmental involvement such studies have typically been concerned with modeling the effect of supports and diversions in an ex post sense rather than with how producers used the knowledge of farm programs to form their expectations if producers are rational economic agents their expectations of harvest prices should be conditioned both by free market forces and the type and degree of governmental intervention in the market of course farm programs have varied in nature and extent during the past thirty years and it is doubtful that any structural model could capture their complexities in this paper we attempt to introduce rational expectations in a simplified model of the u s corn market in essence we focus on the formation of price expectations when price supports constitute an effective lower bound on the distribution of the expectations we proceed by developing a theoretical model that connects the rational expectations model with a model of bounded price variation it is shown that one representation that may characterize the corn market is a triangular structural system with endogenous switching a full information maximum likelihood estimator is proposed for the system next an empirical model is specified and estimated the model is evaluated in comparison to an augmented model that contains a futures price so that some inferences may be made concerning the rational expectations model s success in summarizing relevant market information expectations under bounded prices consider a market that may be represented by a simple supply and demand system q a pt a2w el supply function pt b qt b2xt e2t demand function 1 where p and q represent market price and quantity w and x represent supply and demand shifters and p represents the rational expectation of product price at the time production decisions are made note that this system has a familiar recursive structure when the expected price variable is specified in terms of one or more lagged prices when the restricted reduced form of the structural system is solved for in terms of the expected price and this expression is used to replace pj wallis 1980 then models similar to those of goodwin and sheifrin 1982 and shonkwiler and emerson 1982

the measurement and characteristics of professional forecasters uncertainty there is increased interest in extracting indicators of macroeconomic risk and uncertainty from forecast surveys that include questions about density forecasts in this paper we consider several statistical issues that arise in the construction and interpretation of measures of uncertainty from such data with application to the bank of england survey of external forecasters we find substantial heterogeneity of individual forecast uncertainty and significant persistence in individual relative uncertainty this is an individual characteristic akin to the individual optimism and pessimism already established among point forecasts and which is seen to be present in the current data in a bivariate sense with respect to forecasts of inflation and output growth whether disagreement among point forecasts is a useful indicator of uncertainty is seen to depend on the underlying macroeconomic environment in an appendix the main findings of the paper are replicated with data from the european central bank survey of professional forecasters

jump dynamics with structural breaks for crude oil prices this study investigates the joint phenomena of permanent and transitory components in conditional variance and jump intensity along with verification of structural breaks for crude oil prices we adopt a component arji model with structural break analysis utilizing daily data on west texas intermediate crude oil spot and futures contracts the analytical results verify the existence of permanent and transitory components in conditional variance with the permanent component of conditional variance increasing with the occurrence of a sudden major event such as the iraqi invasion of kuwait operation desert storm and the war between the us and iraq and a relatively greater increase in the transitory component over the same period notably jump intensity fluctuates with an increase in the transitory component of conditional variance in response to abnormal events it is the transitory component which serves as the primary influential factor for jumps in returns therefore speculators are willing to take large risks particularly with respect to anticipating future price movements or gambling in the hopes of rapidly making substantial gains thus speculators prefer the temporary volatility component and engage in trade activities however investors prefer the permanent volatility component because they may well be better off relocating their assets into more stable portfolios to outperform the market portfolio over the long run

measuring consumer uncertainty about future inflation we introduce a survey based measure of uncertainty about future inflation asking consumers for density forecasts across inflation outcomes consumers are willing and able to express uncertainty showing high response rates and response patterns that are reliably related to qualitative measures of uncertainty heterogeneity in expressed uncertainty is associated with demographic characteristics and financial literacy and measures of central tendency derived from density forecasts are strongly correlated with point forecasts furthermore expressed uncertainty is positively related to point forecast levels and to larger revisions in point forecasts over time copyright 2011 john wiley sons ltd

heterogeneity in expectations risk tolerance and household stock shares the attenuation puzzle this article jointly estimates the relationship between stock share and expectations and risk preferences the survey allows individual level quantitative estimates of risk tolerance and of the pe

perceived inflation under loss aversion building on prospect theory we apply the concept of loss aversion to the formation of inflation perceptions and test empirically for nonlinearities in the inflation perceptions relation for a panel of 10 euro area countries specifically under the assumption of loss aversion inflation changes above a certain reference rate will be perceived more strongly rejecting rationality of inflation perceptions in general under symmetric loss and in a majority of cases under flexible loss functions panel smooth transition models give evidence of nonlinearities in the inflation perceptions relation regarding both actual inflation and time this result is confirmed by dynamic fixed effects estimates where the slope of the estimated value function is significantly steeper in the loss region and the implied average reference inflation rate is found close to 2

the price is right updating inflation expectations in a randomized price information experiment abstract using a unique randomized information experiment embedded in a survey this paper investigates how consumers inflation expectations respond to new information we find that respondents on average update their expectations in response to certain types of information and do so sensibly in a manner consistent with bayesian updating as a result of information provision the distribution of inflation expectations converges toward its center and cross sectional disagreement declines we document heterogeneous information processing by gender and present suggestive evidence of respondents forecasting under asymmetric loss our results provide support for expectation formation models in which agents form expectations rationally but face information constraints

asymmetric predictability of conditional variances we show that there is an asymmetry in the predictability of the volatilities of large versus small firms using both univariate and multivariate arma garch m parameterizations we find that volatility surprises to large market value firms are important to the future dynamics of their own returns as well as the returns of smaller firms conversely however shocks to smaller firms have no impact on the behavior of either the mean or the variance of the returns of larger capitalization companies article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

autoregressive conditional heteroscedasticity in commodity spot prices muth s 1961 rational expectations model of commodity markets implies that inventory carryover creates arch processes in prices the model also indicates that the expected price variance is an explanatory variable in price regressions hypotheses were tested on price data of twenty commodities using a variation of engle et al 1987 arch m technique an arch process was found in storable and not in non storable commodity data as expected however changes in expected price variance have no significant impact on price copyright 2001 john wiley sons ltd

earnings expectations revisions and realizations during the spring and the fall of 1993 respondents to a national household survey were asked to report expectations of spring 1994 weekly earnings elicited in the form of subjective probabilities these data are potentially much more informative than are typical reports of economic expectations subjective probability distributions of future weekly earnings are estimated for each respondent based on his or her reports of a series of subjective probabilities this paper analyzes the cross sectional variation in expectations revisions of expectations between the spring and the fall of 1993 and the relationship between 1993 expectations and the distribution of spring 1994 earnings realizations generally positive findings on the validity of the data bode well for the prospects of eliciting expectations in future surveys

a conditional variance model for daily deviations of an exchange rate a model for the distribution of daily deviations of an exchange rate is suggested the distribution is gaussian with a variance that depends on previous deviations the model is applied to the exchange rate of the u s dollar to special drawing rights

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

equity market neutral hedge funds and the stock market an application of score driven copula models in this article we study the time varying market neutrality of equity market neutral hedge funds we use data from the hedge fund research equity market neutral index hfrx eh which represents

arch models properties estimation and testing abstract the aim of this survey paper is to provide an account of some of the important developments in the autoregressive conditional heteroskedasticity arch model since its inception in a seminal paper by engle 1982 this model takes account of many observed properties of asset prices and therefore various interpretations can be attributed to it we start with the basic arch models and discuss their different interpretations arch models have been generalized in different directions to accommodate more and more features of the real world we provide a comprehensive treatment of many of the extensions of the original arch model next we discuss estimation and testing for arch models and note that these models lead to some interesting and unique problems there have been numerous applications and we mention some of these as we present different models the paper includes a glossary of the acronyms for the models we describe

the economic role of commodity storage one of the earliest and most successful exainples of economic policy is the oftquoted biblical account of joseph s interpretation of the pharoah s dream joseph foretold that seven years of abundant harvests would precede seven years of drought and recommended that the pharoah accumulate grain during the good years since that time the central role of storage in stabilising the economy in the face of exogenous disturbances has been obvious but our understanding of the nature of that role has not greatly advanced without divine assistance in forecasting stochastic production the storage decision is considerably more complex than the one joseph faced and the role of storage quite different in fact several commonly held impressions about the role of storage of commodities such as grains are incorrect rather than stabilising production storage actually accentuates its variability rather than causing a mean price preserving decrease or a mean output preserving decrease in the dispersion of price storage generally causes a more complex modification of the distribution of price rather than being most effective at eliminating short falls in consumption storage actually is more effective at eliminating the incidence of exceedingly high consumption in this paper we explore the role of storage in a model where production is stochastic and both production and storage are performed by competitive profitmaximisers who form rational expectations about the returns to their activities we derive the subtle but very important interactions among production price expectations and storage which simpler models cannot capture finally we make a comparative statics assessment of the distributional implications of storage these results while confirming the importance of the specification of the demand function and the supply elasticity identified in recent analytical studies e g wright i979 and newbery and stiglitz i979 are surprisingly favourable to consumers considering the asymmetric nature of the effects of storage on consumption and price storage is simply a productive activity one that transfers a commodity from one period to the next like other forms of production it is costly the total cost of storing an amount st from period t to period t i is as of period t i

comparing the point predictions and subjective probability distributions of professional forecasters we use data from the survey of professional forecasters spf to compare point predictions of gross domestic product gdp growth and inflation with the subjective probability distributions held by forecasters we find that most spf point predictions are quite close to the central tendencies of forecasters subjective distributions tend to be asymmetric with spf forecasters tending to report point predictions that give a more favorable view of the economy than do their subjective means medians modes

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

volatility persistence in crude oil markets financial market participants and policy makers can benefit from a better understanding of how shocks can affect volatility over time this study assesses the impact of structural changes and outliers on volatility persistence of three crude oil markets brent west texas intermediate wti and organization of petroleum exporting countries opec between january 2 1985 and june 17 2011 we identify outliers using a new semi parametric test based on conditional heteroscedasticity models these large shocks can be associated with particular event patterns such as the invasion of kuwait by iraq the operation desert storm the operation desert fox and the global financial crisis as well as opec announcements on production reduction or us announcements on crude inventories we show that outliers can bias i the estimates of the parameters of the equation governing volatility dynamics ii the regularity and non negativity conditions of garch type models garch igarch figarch and hygarch and iii the detection of structural breaks in volatility and thus the estimation of the persistence of the volatility therefore taking into account the outliers on the volatility modelling process may improve the understanding of volatility in crude oil markets

a closer look at the behavior of uncertainty and disagreement micro evidence from the euro area this paper examines point and density forecasts of real gdp growth inflation and unemployment from the european central bank s survey of professional forecasters we present individual uncertainty measures and introduce individual point and density based measures of disagreement the data indicate substantial heterogeneity and persistence in respondents uncertainty and disagreement with uncertainty associated with prominent respondent effects and disagreement associated with prominent time effects we also examine the co movement between uncertainty and disagreement and find an economically insignificant relationship that is robust to changes in the volatility of the forecasting environment this provides further evidence that disagreement is not a reliable proxy for uncertainty

international commodity agreements design and performance abstract this article traces the design and performance of the five currently or recently active international commodity agreements icas in cocoa coffee natural rubber sugar and tin following detailed discussion of each of these the author makes three observations that icas can only be successful provided that they command a consensus in their industries that existing agreements are not robust enough with regard to exchange rates and that existing agreements are poorly drafted the author argues that the collapse of the tin agreement in october 1985 may have marked the end of the postwar chapter in the commodity intervention story he finds it improbable that new icas will emerge and suggests instead that more of the existing agreements will lapse

stochastic dominance and expected utility while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics

on the use of expectations data in estimating structural dynamic choice models despite the importance of expectations in models of decision behavior under uncertainty few empirical economists have made use of subjective expectations data in estimating such models assuming that expectations about future behavior accurately portray optimal future behavior conditional on current information it is shown that such data can provide similar information about the decision process as can data on current or retrospective behavior the value of self reported choice expectations is illustrated by using information on respondents expected future occupation in the estimation of a structural dynamic model of teacher career decisions under uncertainty

the excess co movement of commodity prices reconsidered this paper provides an empirical reconsideration of evidence for excess co movement of commodity prices within the framework of univariate and multivariate garch 1 1 models alternative formulations of zero excess co movement are provided and corresponding score and likelihood ratio tests are developed monthly time series data for two sample periods 1960 85 and 1974 92 on up to nine commodities are used in contrast to earlier work only weak evidence of excess co movement is found

the measurement and behavior of uncertainty evidence from the ecb survey of professional forecasters summary we examine matched point and density forecasts of output growth inflation and unemployment from the ecb survey of professional forecasters we construct measures of uncertainty from individual histograms and find that the measures display countercyclical behavior and have increased across all forecast horizons since 2007 we also derive measures of forecast dispersion and forecast accuracy and find that they are not reliable proxies for uncertainty there is however evidence of a meaningful co movement between uncertainty and aggregate point predictions for output growth and unemployment these results are robust to changes in the composition of the survey respondents over time copyright 2015 john wiley sons ltd

an empirical analysis of earnings and employment risk the mean and higher moments of the distribution of future income are crucial determinants of individual choices these moments are usually estimated in panel data from past income realizations inthis article we rely instead on subjective expectations available in the 1995 survey of household income and wealth a large random sample representative of italian households the survey elicits information on the distribution of future earnings and on the probability of unemployment analysis of this distribution helps us understand how individual uncertainty evolves over the life cycle and if attitudes toward risk affect occupational choices and income riskiness

bridging the gap between the distribution of realized ecu volatility and arch modelling of the euro the garch nig model summary this paper bridges the gap between traditional arch modelling and recent advances on realized volatilities based on a ten year sample of five minute returns for the ecu basket currencies versus the us dollar we find that the realized volatilities constructed from the summation of the high frequency intraday squared returns conditional on the lagged squared daily returns are approximately inverse gaussian ig distributed while the distribution of the daily returns standardized by their realized volatilities is approximately normal moreover the implied daily garch model with normal inverse gaussian nig errors estimated for the ecu returns results in very accurate out of sample predictions for the three years of actual daily euro us dollar exchange rates copyright 2002 john wiley sons ltd