Teaching Documents by jesus gonzalo
Papers by jesus gonzalo
RePEc: Research Papers in Economics, Jun 1, 2011
The order of integration is valid to characterize linear processes; but it is not appropriate for... more The order of integration is valid to characterize linear processes; but it is not appropriate for non-linear worlds. We propose the concept of summability (a re-scaled partial sum of the process being Op(1)) to handle non-linearities. The paper shows that this new concept, S(): (i) generalizes I(); (ii) measures the degree of persistence as well as of the evolution of the variance; (iii) controls the balancedness of non-linear regressions; (iv) co-summability represents a generalization of co-integration for non-linear processes. To make this concept empirically applicable asymptotic properties of estimation and inference methods for the degree of summability, , are provided. The …nite sample performance of these methods is analyzed via a Monte Carlo experiment. The paper …nishes with the estimation of the degree of summability for the Nelson-Plosser extended database.
Studies in Nonlinear Dynamics and Econometrics, 2017
We empirically investigate the short-run impact of anticipated and unanticipated unemployment rat... more We empirically investigate the short-run impact of anticipated and unanticipated unemployment rates on stock prices. We particularly examine the nonlinearity in the stock market's reaction to the unemployment rate and study the effect at each individual point (quantile) of the stock return distribution. Using nonparametric Granger causality and quantile regression-based tests, we find that only anticipated unemployment rate has a strong impact on stock prices. Quantile regression analysis shows that the causal effects of anticipated unemployment rate on stock returns are usually heterogeneous across quantiles. For the quantile range (0.35, 0.80), an increase in the anticipated unemployment rate leads to an increase in stock market prices. For other quantiles, the impact is generally statistically insignificant. Thus, an increase in the anticipated unemployment rate is, in general, good news for stock prices. Finally, we offer a reasonable explanation for the reason, and manner in which, the unemployment rate affects stock market prices. Using the Fisher and Phillips curve equations, we show that a high unemployment rate is followed by monetary policy action of the Federal Reserve (Fed). When the unemployment rate is high, the Fed decreases the interest rate, which in turn increases the stock market prices.
Journal of Econometrics, Aug 1, 2005
This paper discusses inference in self exciting threshold autoregressive (SETAR) models. Of main ... more This paper discusses inference in self exciting threshold autoregressive (SETAR) models. Of main interest is inference for the threshold parameter. It is well known that the asymptotics of the corresponding estimator depend upon whether the SETAR model is continuous or not. In the continuous case, the limiting distribution is normal and standard inference is possible. In the discontinuous case, the limiting distribution is non normal and it is not known how to estimate it consistently. We show that valid inference can be drawn by the use of the subsampling method. Moreover, the method can even be extended to situations where the (dis)continuity of the model is unknown. In this case, the inference for the regression parameters of the model also becomes difficult and subsampling can be used again. In addition, we consider an hypothesis test for the continuity of a SETAR model. A simulation study examines small sample performance and an application illustrates how the proposed methodology works in practice.
Journal of Econometrics, Sep 1, 2010
In this paper we present an equilibrium model of commodity spot (St) and futures (It) prices, wit... more In this paper we present an equilibrium model of commodity spot (St) and futures (It) prices, with finite elasticity of arbitrage seIVices and convenience yields. By explicitly incorporating and modelling endogenously the convenience yield, our theoretical model is able to capture the existence of backwardation or contango in the long-run spot-futures equilibrium relationship. St = PJr. + P3' When the slope of the cointegratingvector fh > 1(fh < 1) the market is under long run backwardation (contango). It is the first time in this literature in which the theoretical possibility of finding a cointegrating vector different from the standard P2 = 1 is formally considered.
RePEc: Research Papers in Economics, Feb 1, 1996
This paper proposes a systematic framework for analyzing the dynamic effects of permanent and tra... more This paper proposes a systematic framework for analyzing the dynamic effects of permanent and transitory shocks on a system of n economic variables. We consider a two-step orthogonolization on the residuals of a VECM with r co integrating vectors. The first step separates the permanent shocks and r transitory shocks. The approach exploits the co integrating relationships in the data. Although theoretical restrictions can be used, they are not necessary. We also show how impulse response functions can be constructed to trace out the propagating mechanism of shocks distinguished by their degree of persistence. This differs from the common approach of distinguishing shocks by their origin, and hence offers a complementary way of analyzing macroeconomic dynamics.
International Economic Review, Jul 28, 2014
This paper proposes nonparametric consistent tests of conditional stochastic dominance of arbitra... more This paper proposes nonparametric consistent tests of conditional stochastic dominance of arbitrary order in a dynamic setting. The novelty of these tests lies in the nonparametric manner of incorporating the information set into the test. The test allows for general forms of unknown serial and mutual dependence between random variables, and has an asymptotic distribution that can be easily approximated by simulation. This method has good finite-sample performance. These tests are applied to determine the investment efficiency between U S industry portfolios conditional on the dynamics of the market portfolio. The empirical analysis suggests that Telecommunications dominates the other sectoral portfolios under risk aversion.
Social Science Research Network, 2019
We show that several shocks identified without restrictions from a model, and frequently used in ... more We show that several shocks identified without restrictions from a model, and frequently used in the empirical literature, display some persistence. We demonstrate that the two leading methods to recover impulse responses to shocks (moving average representations and local projections) treat persistence differently, hence identifying different objects. In particular, standard local projections identify responses that include an effect due to the persistence of the shock, while moving average representations implicitly account for it. We propose methods to re-establish the equivalence between local projections and moving average representations. In particular, the inclusion of leads of the shock in local projections allows to control for its persistence and renders the resulting responses equivalent to those associated to counterfactual non-serially correlated shocks. We apply this method to well-known empirical work on fiscal and monetary policy and find that accounting for persistence has a sizable impact on the estimates of dynamic effects.
RePEc: Research Papers in Economics, Jun 21, 2006
In this paper we introduce threshold type nonlinearities within a single equation cointegrating r... more In this paper we introduce threshold type nonlinearities within a single equation cointegrating regression model and propose a testing procedure for testing the null hypothesis of linear cointegration versus cointegration with threshold effects. Our framework allows the modelling of long run equilibrium relationships that may switch according to the magnitude of a threshold variable assumed to be stationary and ergodic and thus constitutes an attempt to deal econometrically with the potential presence of multiple equilibria. The framework is flexible enough to accomodate regressor endogeneity and serial correlation.
RePEc: Research Papers in Economics, 2015
We develop tests for detecting possibly episodic predictability induced by a persistent predictor... more We develop tests for detecting possibly episodic predictability induced by a persistent predictor. Our framework is that of a predictive regression model with threshold effects and our goal is to develop operational and easily implementable inferences when one does not wish to imposeà priori restrictions on the parameters of the model other than the slopes corresponding to the persistent predictor. Differently put our tests for the null hypothesis of no predictability against threshold predictability remain valid without the need to know whether the remaining parameters of the model are characterised by threshold effects or not (e.g. shifting versus non-shifting intercepts). One interesting feature of our setting is that our test statistics remain unaffected by whether some nuisance parameters are identified or not. We subsequently apply our methodology to the predictability of aggregate stock returns with valuation ratios and document a robust countercyclicality in the ability of some valuation ratios to predict returns.
RePEc: Research Papers in Economics, 1992
This paper explores the conditions under which cointegration at the micro level implies cointegra... more This paper explores the conditions under which cointegration at the micro level implies cointegration at the macro level and vice versa. The aggregation conditions considered in this paper are in terms of common factors assumptions rather than the representative agent assumption, thereby allowing for a certain kind of heterogeneity among agents.
RePEc: Research Papers in Economics, Sep 1, 2016
This paper studies the long-term asset allocation problem of an individual with risk aversion coe... more This paper studies the long-term asset allocation problem of an individual with risk aversion coefficient that i) varies with economic conditions, and ii) exhibits different risk attitudes towards the short and the long term. To do this, we propose a parametric linear portfolio policy that accommodates an arbitrarily large number of assets in the portfolio and a piecewise linear risk aversion coefficient. These specifications of the optimal portfolio policy and individual's risk aversion allow us to apply GMM methods for parameter estimation and testing. Our empirical results provide statistical evidence of the existence of a short-term and a long-term regime in the individual's risk aversion. Long-term risk aversion is always higher than short-term risk aversion, and it is more statistically significant as the investment horizon increases. The analysis of the optimal portfolio weights also suggests that the allocation to stocks and bonds is strongly negatively correlated, with the magnitude of the portfolio weights and risk aversion coefficients increasing as the investment horizon expands.
RePEc: Research Papers in Economics, Sep 1, 2008
In moments of distress downside risk measures like Lower Partial Moments (LPM) are more appropria... more In moments of distress downside risk measures like Lower Partial Moments (LPM) are more appropriate than the standard variance to characterize risk. The goal of this paper is to study how to compare portfolios in these situations. In order to do that we show the close connection between mean-risk efficiency sets and stochastic dominance under distress episodes of the market, and use the latter property to propose a hypothesis test to discriminate between portfolios across risk aversion levels. Our novel family of test statistics for testing stochastic dominance under distress makes allowance for testing orders of dominance higher than zero, for general forms of dependence between portfolios and can be extended to residuals of regression models. These results are illustrated in the empirical application for data from US stocks. We show that mean-variance strategies are stochastically dominated by mean-risk efficient sets in episodes of financial distress.
RePEc: Research Papers in Economics, 1995
This paper analyzes the robustness of the two most commonly used cointegration tests: the single ... more This paper analyzes the robustness of the two most commonly used cointegration tests: the single equation based test of Engle and Granger (EG) and the system based test of Johansen. We show analytically and numerically several important situations where the Johansen LR tests tend to find spurious cointegration with probability approaching one asymptotically. The situations investigated are of two types. The first one corresponds to variables that have long-memory properties and a trending behavior, but they are not pure I(1) processes although they are difficult to tell from I(1) with standard unit root tests. The second corresponds to I(1) variables whose VAR representation has a singular or near-singular error covariance matrix. In most of the situations investigated in this paper, EG test is more robust than Johansen LR tests. This paper shows that a proper use of the LR test in applied cointegration analysis requires a deeper data analysis than the standard unit root test. We conclude by recommending to use both tests (EG and Johansen) to test for cointegration in order to avoid or to discover a pitfall. 1998 Elsevier Science S.A. All rights reserved.
arXiv (Cornell University), Nov 6, 2019
Quantile Factor Models (QFM) represent a new class of factor models for high-dimensional panel da... more Quantile Factor Models (QFM) represent a new class of factor models for high-dimensional panel data. Unlike Approximate Factor Models (AFM), where only location-shifting factors can be extracted, QFM also capture unobserved factors shifting other relevant parts of the distributions of observables. We propose a quantile regression approach, labeled Quantile Factor Analysis (QFA), to consistently estimate all the quantile-dependent factors and loadings. Their asymptotic distribution is derived using a kernel-smoothed version of the QFA estimators. Two consistent model-selection criteria, based on information criteria and rank minimization, are developed to determine the number of factors at each quantile. Moreover, in contrast to the conditions required by Principal Components Analysis in AFM, QFA estimation remains valid even when the idiosyncratic errors have heavy-tailed distributions. Three empirical applications (regarding climate, macroeconomic and finance panel data) illustrate that extra factors shifting quantiles other than the means could be relevant for causality analysis, prediction and economic interpretation of common factors.
Documentos de trabajo. Economic series ( Universidad Carlos III. Departamento de Economía ), 2009
In moments of financial distress downside risk measures like lower partial moments are more appro... more In moments of financial distress downside risk measures like lower partial moments are more appropriate than the standard variance to characterize risk. The goal of this paper is to study how to choose optimal portfolios in these periods. In order to do this we extend the definition of lower partial moments to this environment, derive the corresponding mean-risk dominance set and define the concept of stochastic dominance under distress. The paper shows the close connection between the mean-risk dominance set and the stochastic dominance frontier in these situations. The advantage of using stochastic dominance is that we can readily compare investors' preferences over investment portfolios in a meaningful way regardless their degree of risk aversion. We do this by proposing a hypothesis test. Our novel family of test statistics for testing stochastic dominance under distress makes allowance for testing orders of dominance higher than one, for general forms of dependence between portfolios and can be extended to residuals of regression models. These results are illustrated in an empirical application for data from US stocks. We show that mean-variance strategies are stochastically dominated by meanrisk efficient portfolios in episodes of financial distress.
Oxford Bulletin of Economics and Statistics, Jul 23, 2018
This paper studies the long-term asset allocation problem of an investor with different risk aver... more This paper studies the long-term asset allocation problem of an investor with different risk aversion attitudes to the short and the long term. We characterize investor's preferences with a utility function exhibiting a regime shift in risk aversion at some point of the multiperiod investment horizon that is estimated using threshold nonlinearity methods. Our empirical results for a portfolio of cash, bonds and stocks suggest that long-term risk aversion is higher than short-term risk aversion and increases with the investment horizon. The exposure of the investment portfolio from stocks to bonds and cash increases with the degree of risk aversion.
Social Science Research Network, 2010
This article may be used for research, teaching, and private study purposes. Any substantial or s... more This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae, and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand, or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.
Social Science Research Network, 2020
Quantile Factor Models (QFM) represent a new class of factor models for high-dimensional panel da... more Quantile Factor Models (QFM) represent a new class of factor models for high-dimensional panel data. Unlike Approximate Factor Models (AFM), where only mean-shifting factors can be extracted, QFM also allow to recover unobserved factors shifting other relevant parts of the distributions of observed variables. A quantile regression approach, labeled Quantile Factor Analysis (QFA), is proposed to consistently estimate all the quantile-dependent factors and loadings. Their asymptotic distribution is then derived using a kernel-smoothed version of the QFA estimators. Two consistent model selection criteria, based on information criteria and rank minimization, are developed to determine the number of factors at each quantile. Moreover, in contrast to the conditions required for the use of Principal Components Analysis in AFM, QFA estimation remains valid even when the idiosyncratic errors have heavy-tailed distributions. Three empirical applications (regarding climate, financial and macroeconomic panel data) provide evidence that extra factors shifting quantiles other than the means could be relevant in practice.
This paper shows, analytically and numerically, the effects of a misspecification in the degree o... more This paper shows, analytically and numerically, the effects of a misspecification in the degree of integration on testing for cointegration. Johansen LR tests tend to find too much spurious cointegration while the Engle-Granger test shows a more robust performance than the LR tests.
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Teaching Documents by jesus gonzalo
Papers by jesus gonzalo