We consider the standard linear regression model with all standard assumptions, except that the disturbances are not white noise, but distributed N(0,p2X(h)) where X(0)"I n . Our interest lies in testing linear restrictions using the usual F-statistic based on OLS residuals. We are not interested in "nding out whether h"0 or not. Instead we want to "nd out what the e!ect is of possibly nonzero ...

It is well known that late introduction of new Products into the CPI leads to an upward bias in the index. Moreover, improper treatment of quality improvement in the product will add to the upward bias. In this paper a hedonic elementary price index for accessing the Internet in Canada is constructed. We find that the quality-adjusted price index declines at about 15% per year. Detailed data ar...

A continuous time econometric modelling framework for multivariate financial market event (or ‘transactions’) data is developed in which the model is specified via the vector conditional intensity. Generalised Hawkes models are introduced that incorporate inhibitory events and dependence between trading days. Novel omnibus specification tests based on a multivariate random time change theorem a...

This paper evaluates the specification errors of several empirical asset pricing models that have been developed as potential improvements on the CAPM. We use the methodology of Hansen and Jagannathan (J. Finance 51 (1997) 3), and the test assets are the 25 Fama-French (J. Financial Econom. 52 (1997) 557) equity portfolios sorted on size and book-to-market ratio, and the Treasury bill. We allow...

Many authors have documented that it is challenging to explain exchange rate fluctuations with macroeconomic fundamentals: a random walk forecasts future exchange rates better than existing macroeconomic models. This paper applies newly developed tests for nested model that are robust to the presence of parameter instability. The empirical evidence shows that for some countries we can reject th...

This paper develops a novel and e¤ective bootstrap method for simulating asymptotic critical values for tests of equal forecast accuracy and encompassing among many nested models. The bootstrap, which combines elements of …xed regressor and wild bootstrap methods, is simple to use. We …rst derive the asymptotic distributions of tests of equal forecast accuracy and encompassing applied to foreca...

We specify a class of non-linear and non-Gaussian models for which we estimate and forecast the conditional distributions with daily frequency. We use these forecasts to calculate VaR measures for three different equity markets (US, GB and Japan). These forecasts are evaluated on the basis of different statistical performance measures as well as on the basis of their economic costs that go alon...

A practice that has become widespread and widely endorsed is that of evaluating forecasts of financial variability obtained from discrete time models by comparing them with high-frequency ex post estimates (e.g. realised volatility) based on continuous time theory. In explanatory financial variability modelling this raises several methodological and practical issues, which suggests an alternati...

Implied volatility indices are becoming increasingly popular as a measure of market uncertainty and as a vehicle for developing derivative instruments to hedge against unexpected changes in volatility. Although jumps are widely considered as a salient feature of volatility, their implications for volatility options and futures are not yet fully understood. This paper provides evidence indicatin...

This paper considers an important practical problem in testing time-series data for nonlinearity in mean. Most popular tests reject the null hypothesis of linearity too frequently if the the data are heteroskedastic. Two approaches to redressing this size distortion are considered, both of which have been proposed previously in the literature although not in relation to this particular problem....