A number of methods of evaluating the validity of interval forecasts of financial data are analysed, and illustrated using intraday FTSE100 index futures returns. Some existing interval forecast evaluation techniques, such as the Markov chain approach of Christoffersen (1998), are shown to be inappropriate in the presence of periodic heteroscedasticity. Instead, we consider a regression-based t...

We propose a new method for multivariate forecasting which combines Dynamic Factor and multivariate GARCH models. We call the model Dynamic Factor GARCH, as the information contained in large macroeconomic or financial datasets is captured by a few dynamic common factors, which we assume being conditionally heteroskedastic. After describing the estimation of the model, we present simulation res...

With increased market integration, the current world financial markets have become more closely correlated and interdependent over time. Understanding the information linkages and correlations between markets are important for policy makers and fund managers in their financial decisions in relation to investment and risk management. The existence of low correlation among returns from different ...

A microscopic model of financial markets is considered, consisting of many interacting agents (spins) with global coupling and discrete-time heat bath dynamics, similar to random Ising systems. The interactions between agents change randomly in time. In the thermodynamic limit, the obtained time series of price returns show chaotic bursts resulting from the emergence of attractor bubbling or on...

In the context of the measurement of market risk, the random variable is taken as the rate of return of a financial asset. One may define the return in different ways, the two most common are arithmetic and geometric returns. The distinction between these two types of returns is not well understood. They are frequently assumed to be approximately equal. Moreover they both are assumed to be norm...

Risk capital is the contribution of an exposure to the default risk of a financial institution. We investigate its relationship with required shareholder returns, showing that the use of return on risk capital (RAROC) as a risk-adjusted performance measure is inconsistent with the standard theory of financial valuation and that using this one measure to represent at the same time both contribut...

This study examines IPO returns for commercial banks and savings banks over the period 1975 to 1994. These financial firms have traditionally been eliminated from IPO studies due to the regulatory nature of the industry. Logue’s (1973) justification for excluding these firms is that they would create a downward bias in any IPO study as a result of the market’s more accurate pricing of these iss...

We investigate the fluctuation behaviors of financial stock markets by Zipf analysis. In the present paper, the empirical research is made to describe ensembles and specifics of stock price returns for global stock indices, and the corresponding Zipf distributions are given. First we study the fluctuation behavior of global stock markets by m, k -Zipf method. Then we consider a dynamic stock pr...

The finite-range voter system, one of stochastic particle systems, is applied to model a financial price process for further description and investigation of fluctuations of Shanghai Composite Index. For different parameter values of the intensity and the range R , we investigate the statistical behaviors of the simulation data for this financial model. Then we develop the random jump time effe...

Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure noise to observable characteristics of the underlying stocks and, in particular, to different financial...