Econometrics of financial markets, -solutions to seminar 1. Problem 1
|
|
- Christian Casey
- 5 years ago
- Views:
Transcription
1 Econometrics of financial markets, -solutions to seminar 1. Problem 1 a) Estimate with OLS. For any regression y i α + βx i + u i for OLS to be unbiased we need cov (u i,x j )0 i, j. For the autoregressive model y t µ + αy t 1 + ε t we have cov(y t 1,ε t+k )0for all k > 0 and the fact that cov(y t 1,ε t+k )0for k 0ensures that OLS gives consistent results. However for k 1, 2, 3,... cov(y t 1,ε t+k ) 6 0which results in a bias towards zero in small samples. Note that you do not need an "infinitely large sample" for the asymptotic properties to be good approximations. In practical applications the bias is most often neglected without any discussion unless the sample is very small. b) Use the lag operator: y t 1 Ly t. Note that the lag operator can be subject to simple algebraic manipulations like L(ax t + by t )alx t + bly t and (Ly t ) 2 L 2 yt 2 yt 2 2 Using the lag operator: y t µ + αy t 1 + ε t, α < 1 y t (1 αl) µ + ε t y t µ 1 α αl ε t µ 1 α +(1+αL + α2 L )ε t µ 1 α + ε t + αε t 1 + α 2 ε t µ 1 α + X α i ε t i i0 c) 1
2 Assume k > 0 cov(y t,y t k ) cov α i ε t i, α j ε t k j i0 i0 j0 j0 α i+j cov (ε t i,ε t k j ) i>0,i6k+j j0 + α i+j cov (ε t i,ε t k j ) α k+j+j cov (ε t k j,ε t k j ) j0 X σ 2 α k+2j αk 1 α 2 σ2 j0 ρ k k>0 cov (y t,y t k ) p var(yt ) p var(y t k ) α k 1 α σ α σ 2 αk 2 Must have ρ k ρ k,soρ k α k d) Assume k > 0. For the MA(1) model cov(y t,y t k ) cov (ε t + θε t 1,ε t k + θε t k 1 ) 0 if k>1 { θσ 2 if k 1 1+θ 2 σ 2 if k 0 ρ 1 θ 1+θ 2 ρ 2 ρ
3 e) To solve, assume stationarity; unconditional expectation and variance are then independent of the time subscript and autocovariances only dependent on time difference.. var(y) α 2 1var (y)+α 2 1var (y)+σ 2 +2α 1 α 2 cov (y t 1,y t 2 ) cov(y t,y t 1 ) α 1 var(y)+α 2 cov (y t 1,y t 2 ) Must have cov(y t,y t 1 )cov (y t 1,y t 2 ) c 1, so c 1 α 1 var(y) 1 α 2 var(y) 1 α 2 1 α 2 1 σ 2 +2α 1 α 2 c 1 var(y) (1 α 2 ) σ 2 (1 + α 2 )(1 α 1 α 2 )(1+α 1 α 2 ) If any of the conditions listed under exercise e) in the problem text are not satisfied the unconditional variance is not defined. A necessary condition for a process to be stationary is that the unconditional variance is a (constant) finite number, and so the conditions under e) are needed for the AR(2) process to be stationary. f) The autocorrelations; ρ 1 c 1 var(y) α 1 1 α 2 g) cov(y t,y t 2 ) α 1 cov(y t 1,y t 2 )+α 2 var(y t 2 ) ρ 2 α 1 ρ 1 + α 2 α2 1 1 α 2 + α 2 3
4 For the AR(1) model there is no correlation between y t and y t 2 once the correlation between y t and y t 1 is controlled for: For the AR(2) model; ρ 2 1 ρ 2 (ρ 1 ) 2 1 (ρ 1 ) 2 α2 α 2 1 α 2 0 ρ 2 1 ρ 2 (ρ 1 ) 2 α 2 1 (ρ 1 ) 2 α α 2 + α 2 ³ α1 ³ 2 1 α1 1 α 2 ³ α α 2 µ1 1 ³ 1 1 α α α 1 1 α 2 In general, for the AR(p) model, the partial correlation ρ k 1,2,3,...,k 1 will be nonzero for k 6 p and zero for k>p. process acf pacf AR(p) infinite, damps out finite, cuts off after lag p MA(q) finite, cuts off after lag q infinite, damps out ARMA infinite, damps out infinite, damps out h) Forecasting (abstracting from model uncertainty): Definition: Mean squared error (MSE) ; MSE E t (y t+k dy t+k ) 2 It can be shown that choosing the estimator dy t+k to be the conditional expec- 4
5 tation E (y t+k y t ) will minimize MSE. AR(1) process: y t µ + αy t 1 + ε t One period ahead forecasting E (y t+1 y t ) E (µ + αy t + ε t+1 y t ) µ + αy t Two periods ahead E (y t+2 y t ) E µ + αµ + α 2 y t + αε t+1 + ε t+2 y t µ + αµ + α 2 y t k periods ahead E (y t+k y t ) 1 α k 1 α µ + αk y t long run forecast equals unconditional mean: The MA(1): One period ahead: lim E (y t+k y t ) µ k 1 α y t µ + ε t + θε t 1 E (y t+1 y t ) E (µ + ε t+1 + θε t y t ) µ + θe (ε t y t ) Note that E (ε t y t ) is not necessarily zero. Suppose we knew the start value ε 0 along with the parameters µ and θ. Then y 1 µ + ε 1 + θε 0 will reveal the exact value of ε 1, which can be used along with the observations of y up to 5
6 time t, to nest up all the exact values ε 2,ε 3,..., ε t. In this situation the optimal forecast should use this information such that E (y t+1 y t )µ + θε t. More periods ahead: E (y t+k y t ) E (y t+2 y t ) E (µ + ε t+2 + θε t 1 y t ) µ thus the k>1 period forecast of the MA(1) is simply the unconditional mean. i) Consider the special case α 1. If we fix the starting point of the process to some date t 0,wecansolvethedifference equation to obtain and y t y 0 + µt + tx τ1 ε t E (y t ) y 0 + µt var(y t ) σ 2 t + var (y 0 ) s ρ k (t) σ 2 (t k)+var (y 0 ) σ 2 t + var (y 0 ) When µ 6 0the mean evolves over time. As long as there are innovations to the process σ 2 60, the variance and covariances also depend on t. We say the process is non-stationary. To test the null hypothesis α 1, the model can be estimated as usual applying OLS. However, under the null hypothesis the test observator is nonstandard, and a tabulated distribution has to be applied (Dickey and Fuller 1979). If the innovations are serially correlated, an augmented test can be applied. The test has very low power for alpha close to one. There are also alternative tests. 6
7 Efficient market hypothesis. " The information in past prices/returns are not useful in achieving excess returns" Testing price processes for α 1is not equivalent with testing for weak market efficiency. Indeed, if the random walk is the true process then EMH must apply, but the opposite is not true. For an elaborate discussion of EMH, the fair game and the random walk hypothesis, check out e.g. Copeland and Weston, "Financial Theory and Corporate Policy",1983, Addison Wesley. Problem 2 Proposition 2.4 Let y k (δ),k 0, 1, 2,..., T/δ for an integer δ represent a sampled series of y t such that only observations that has a time index that is a multiple of δ is selected. If y t is an autoregressive process of order 1 with an autoregressive coefficient ρ and an innovation variance σ 2, then y k (δ) is an autoregressive process of order 1, with coefficient ρ δ and variance σ 2 1 ρ2 δ 1 ρ. 2 Empirical assessment of the AR(1) on different frequencies using interest rate data, To sample data at different frequencies is not a straight forward task using GiveWin. The following procedure can however be used: 1) Load the data file HF-3MR.xls 2) Open the calculator and generate a new variable, which you can denote "t", using the year() function. The new variable will read 1,2,3,...,P where P is the total number of periods. 7
8 3) Open "algebra editor" from the "tools" menu and type in the following code in the algebra code field: DUMMY (fmod(t, 6) 0)? 1 : 0 ; Press the "run" button. This will generate a new variable called "DUMMY" which will equal one if time subscript is a multiple of 6 and zero otherwise. The syntax of the code should be understood as; "newname, logical condition, value if true, value if false". We specify the number "6" because there is (except for "missing" entries) mostly 6 observations per hour in the data. 8
9 4) Use the calculator to generate a new variable, say "h", which equals the product of DUMMY and t. 5) Use the calculator to generate a variable, of any name, using the function _sortallby(h). This will sort your data according to ascending values of the variable h. In the data editor you will now see all the unselected entries first. The selected entries will start at some period, τ, and will all be in the correct time-order (you can double-check this using the variables minutes, hour, day, month, year). 6) Chose "save as" from the "file" menu and specify that you only want to save the subsample starting at period τ. 9
10 The saved subsample will contain observations at the hourly frequency. If the data is in fact generated by a AR(1) process, fitting this model using the high frequency and the hourly data respectively, then according to proposition 2.4, if the autoregressive parameter from the former regression is ρ, thenthe the autoregressive parameter from the latter regression should equal ρ 6.Ifthis is not true, data suggests that the AR(1) specification is not the appropriate model. You should check proposition 2.4 at several different frequencies using the same procedure to sample the data. You should also include a constant term in the estimation of the models unless you want to evaluate the joint hypothesis of "no constant term" and "process is AR(1)". On the interest rate data you will probably find that proposition 2.4 underestimates the ρ parameter as you turn to less frequent data. As an example, using the high frequency data you can find bρ , while estimating on the hourly data gives bρ Now < which is not in line with prop
Prof. Dr. Roland Füss Lecture Series in Applied Econometrics Summer Term Introduction to Time Series Analysis
Introduction to Time Series Analysis 1 Contents: I. Basics of Time Series Analysis... 4 I.1 Stationarity... 5 I.2 Autocorrelation Function... 9 I.3 Partial Autocorrelation Function (PACF)... 14 I.4 Transformation
More information1 Linear Difference Equations
ARMA Handout Jialin Yu 1 Linear Difference Equations First order systems Let {ε t } t=1 denote an input sequence and {y t} t=1 sequence generated by denote an output y t = φy t 1 + ε t t = 1, 2,... with
More informationChapter 2: Unit Roots
Chapter 2: Unit Roots 1 Contents: Lehrstuhl für Department Empirische of Wirtschaftsforschung Empirical Research and undeconometrics II. Unit Roots... 3 II.1 Integration Level... 3 II.2 Nonstationarity
More informationEmpirical Market Microstructure Analysis (EMMA)
Empirical Market Microstructure Analysis (EMMA) Lecture 3: Statistical Building Blocks and Econometric Basics Prof. Dr. Michael Stein michael.stein@vwl.uni-freiburg.de Albert-Ludwigs-University of Freiburg
More informationTime Series Analysis. James D. Hamilton PRINCETON UNIVERSITY PRESS PRINCETON, NEW JERSEY
Time Series Analysis James D. Hamilton PRINCETON UNIVERSITY PRESS PRINCETON, NEW JERSEY & Contents PREFACE xiii 1 1.1. 1.2. Difference Equations First-Order Difference Equations 1 /?th-order Difference
More informationChapter 4: Models for Stationary Time Series
Chapter 4: Models for Stationary Time Series Now we will introduce some useful parametric models for time series that are stationary processes. We begin by defining the General Linear Process. Let {Y t
More informationTopic 4 Unit Roots. Gerald P. Dwyer. February Clemson University
Topic 4 Unit Roots Gerald P. Dwyer Clemson University February 2016 Outline 1 Unit Roots Introduction Trend and Difference Stationary Autocorrelations of Series That Have Deterministic or Stochastic Trends
More informationTime Series Analysis. James D. Hamilton PRINCETON UNIVERSITY PRESS PRINCETON, NEW JERSEY
Time Series Analysis James D. Hamilton PRINCETON UNIVERSITY PRESS PRINCETON, NEW JERSEY PREFACE xiii 1 Difference Equations 1.1. First-Order Difference Equations 1 1.2. pth-order Difference Equations 7
More informationFinancial Econometrics Review Session Notes 3
Financial Econometrics Review Session Notes 3 Nina Boyarchenko January 22, 2010 Contents 1 k-step ahead forecast and forecast errors 2 1.1 Example 1: stationary series.......................... 2 1.2 Example
More informationFE570 Financial Markets and Trading. Stevens Institute of Technology
FE570 Financial Markets and Trading Lecture 5. Linear Time Series Analysis and Its Applications (Ref. Joel Hasbrouck - Empirical Market Microstructure ) Steve Yang Stevens Institute of Technology 9/25/2012
More informationProblem Set 2: Box-Jenkins methodology
Problem Set : Box-Jenkins methodology 1) For an AR1) process we have: γ0) = σ ε 1 φ σ ε γ0) = 1 φ Hence, For a MA1) process, p lim R = φ γ0) = 1 + θ )σ ε σ ε 1 = γ0) 1 + θ Therefore, p lim R = 1 1 1 +
More informationNon-Stationary Time Series and Unit Root Testing
Econometrics II Non-Stationary Time Series and Unit Root Testing Morten Nyboe Tabor Course Outline: Non-Stationary Time Series and Unit Root Testing 1 Stationarity and Deviation from Stationarity Trend-Stationarity
More informationAdvanced Econometrics
Advanced Econometrics Marco Sunder Nov 04 2010 Marco Sunder Advanced Econometrics 1/ 25 Contents 1 2 3 Marco Sunder Advanced Econometrics 2/ 25 Music Marco Sunder Advanced Econometrics 3/ 25 Music Marco
More informationUnivariate Time Series Analysis; ARIMA Models
Econometrics 2 Fall 24 Univariate Time Series Analysis; ARIMA Models Heino Bohn Nielsen of4 Outline of the Lecture () Introduction to univariate time series analysis. (2) Stationarity. (3) Characterizing
More informationNonstationary Time Series:
Nonstationary Time Series: Unit Roots Egon Zakrajšek Division of Monetary Affairs Federal Reserve Board Summer School in Financial Mathematics Faculty of Mathematics & Physics University of Ljubljana September
More informationReview Session: Econometrics - CLEFIN (20192)
Review Session: Econometrics - CLEFIN (20192) Part II: Univariate time series analysis Daniele Bianchi March 20, 2013 Fundamentals Stationarity A time series is a sequence of random variables x t, t =
More informationTime Series Analysis
Time Series Analysis Christopher Ting http://mysmu.edu.sg/faculty/christophert/ christopherting@smu.edu.sg Quantitative Finance Singapore Management University March 3, 2017 Christopher Ting Week 9 March
More informationCointegration, Stationarity and Error Correction Models.
Cointegration, Stationarity and Error Correction Models. STATIONARITY Wold s decomposition theorem states that a stationary time series process with no deterministic components has an infinite moving average
More informationSolutions to Odd-Numbered End-of-Chapter Exercises: Chapter 14
Introduction to Econometrics (3 rd Updated Edition) by James H. Stock and Mark W. Watson Solutions to Odd-Numbered End-of-Chapter Exercises: Chapter 14 (This version July 0, 014) 015 Pearson Education,
More informationMA Advanced Econometrics: Applying Least Squares to Time Series
MA Advanced Econometrics: Applying Least Squares to Time Series Karl Whelan School of Economics, UCD February 15, 2011 Karl Whelan (UCD) Time Series February 15, 2011 1 / 24 Part I Time Series: Standard
More informationNon-Stationary Time Series and Unit Root Testing
Econometrics II Non-Stationary Time Series and Unit Root Testing Morten Nyboe Tabor Course Outline: Non-Stationary Time Series and Unit Root Testing 1 Stationarity and Deviation from Stationarity Trend-Stationarity
More informationECON/FIN 250: Forecasting in Finance and Economics: Section 6: Standard Univariate Models
ECON/FIN 250: Forecasting in Finance and Economics: Section 6: Standard Univariate Models Patrick Herb Brandeis University Spring 2016 Patrick Herb (Brandeis University) Standard Univariate Models ECON/FIN
More informationA time series is called strictly stationary if the joint distribution of every collection (Y t
5 Time series A time series is a set of observations recorded over time. You can think for example at the GDP of a country over the years (or quarters) or the hourly measurements of temperature over a
More informationChapter 3 - Temporal processes
STK4150 - Intro 1 Chapter 3 - Temporal processes Odd Kolbjørnsen and Geir Storvik January 23 2017 STK4150 - Intro 2 Temporal processes Data collected over time Past, present, future, change Temporal aspect
More informationLecture 2: Univariate Time Series
Lecture 2: Univariate Time Series Analysis: Conditional and Unconditional Densities, Stationarity, ARMA Processes Prof. Massimo Guidolin 20192 Financial Econometrics Spring/Winter 2017 Overview Motivation:
More information3 Theory of stationary random processes
3 Theory of stationary random processes 3.1 Linear filters and the General linear process A filter is a transformation of one random sequence {U t } into another, {Y t }. A linear filter is a transformation
More informationCh 6. Model Specification. Time Series Analysis
We start to build ARIMA(p,d,q) models. The subjects include: 1 how to determine p, d, q for a given series (Chapter 6); 2 how to estimate the parameters (φ s and θ s) of a specific ARIMA(p,d,q) model (Chapter
More informationWeek 5 Quantitative Analysis of Financial Markets Characterizing Cycles
Week 5 Quantitative Analysis of Financial Markets Characterizing Cycles Christopher Ting http://www.mysmu.edu/faculty/christophert/ Christopher Ting : christopherting@smu.edu.sg : 6828 0364 : LKCSB 5036
More informationEcon 424 Time Series Concepts
Econ 424 Time Series Concepts Eric Zivot January 20 2015 Time Series Processes Stochastic (Random) Process { 1 2 +1 } = { } = sequence of random variables indexed by time Observed time series of length
More informationIntroduction to ARMA and GARCH processes
Introduction to ARMA and GARCH processes Fulvio Corsi SNS Pisa 3 March 2010 Fulvio Corsi Introduction to ARMA () and GARCH processes SNS Pisa 3 March 2010 1 / 24 Stationarity Strict stationarity: (X 1,
More informationMidterm Suggested Solutions
CUHK Dept. of Economics Spring 2011 ECON 4120 Sung Y. Park Midterm Suggested Solutions Q1 (a) In time series, autocorrelation measures the correlation between y t and its lag y t τ. It is defined as. ρ(τ)
More informationExercises - Time series analysis
Descriptive analysis of a time series (1) Estimate the trend of the series of gasoline consumption in Spain using a straight line in the period from 1945 to 1995 and generate forecasts for 24 months. Compare
More informationLecture note 2 considered the statistical analysis of regression models for time
DYNAMIC MODELS FOR STATIONARY TIME SERIES Econometrics 2 LectureNote4 Heino Bohn Nielsen March 2, 2007 Lecture note 2 considered the statistical analysis of regression models for time series data, and
More informationModule 3. Descriptive Time Series Statistics and Introduction to Time Series Models
Module 3 Descriptive Time Series Statistics and Introduction to Time Series Models Class notes for Statistics 451: Applied Time Series Iowa State University Copyright 2015 W Q Meeker November 11, 2015
More informationNon-Stationary Time Series and Unit Root Testing
Econometrics II Non-Stationary Time Series and Unit Root Testing Morten Nyboe Tabor Course Outline: Non-Stationary Time Series and Unit Root Testing 1 Stationarity and Deviation from Stationarity Trend-Stationarity
More informationSome Time-Series Models
Some Time-Series Models Outline 1. Stochastic processes and their properties 2. Stationary processes 3. Some properties of the autocorrelation function 4. Some useful models Purely random processes, random
More informationQuestions and Answers on Unit Roots, Cointegration, VARs and VECMs
Questions and Answers on Unit Roots, Cointegration, VARs and VECMs L. Magee Winter, 2012 1. Let ɛ t, t = 1,..., T be a series of independent draws from a N[0,1] distribution. Let w t, t = 1,..., T, be
More informationARIMA Models. Jamie Monogan. January 16, University of Georgia. Jamie Monogan (UGA) ARIMA Models January 16, / 27
ARIMA Models Jamie Monogan University of Georgia January 16, 2018 Jamie Monogan (UGA) ARIMA Models January 16, 2018 1 / 27 Objectives By the end of this meeting, participants should be able to: Argue why
More informationDiscrete time processes
Discrete time processes Predictions are difficult. Especially about the future Mark Twain. Florian Herzog 2013 Modeling observed data When we model observed (realized) data, we encounter usually the following
More informationIntroduction to Econometrics
Introduction to Econometrics STAT-S-301 Introduction to Time Series Regression and Forecasting (2016/2017) Lecturer: Yves Dominicy Teaching Assistant: Elise Petit 1 Introduction to Time Series Regression
More informationUniversity of Oxford. Statistical Methods Autocorrelation. Identification and Estimation
University of Oxford Statistical Methods Autocorrelation Identification and Estimation Dr. Órlaith Burke Michaelmas Term, 2011 Department of Statistics, 1 South Parks Road, Oxford OX1 3TG Contents 1 Model
More informationat least 50 and preferably 100 observations should be available to build a proper model
III Box-Jenkins Methods 1. Pros and Cons of ARIMA Forecasting a) need for data at least 50 and preferably 100 observations should be available to build a proper model used most frequently for hourly or
More informationStationary Stochastic Time Series Models
Stationary Stochastic Time Series Models When modeling time series it is useful to regard an observed time series, (x 1,x,..., x n ), as the realisation of a stochastic process. In general a stochastic
More informationEcon 623 Econometrics II Topic 2: Stationary Time Series
1 Introduction Econ 623 Econometrics II Topic 2: Stationary Time Series In the regression model we can model the error term as an autoregression AR(1) process. That is, we can use the past value of the
More informationCovariance Stationary Time Series. Example: Independent White Noise (IWN(0,σ 2 )) Y t = ε t, ε t iid N(0,σ 2 )
Covariance Stationary Time Series Stochastic Process: sequence of rv s ordered by time {Y t } {...,Y 1,Y 0,Y 1,...} Defn: {Y t } is covariance stationary if E[Y t ]μ for all t cov(y t,y t j )E[(Y t μ)(y
More information9) Time series econometrics
30C00200 Econometrics 9) Time series econometrics Timo Kuosmanen Professor Management Science http://nomepre.net/index.php/timokuosmanen 1 Macroeconomic data: GDP Inflation rate Examples of time series
More informationProblem Set 6 Solution
Problem Set 6 Solution May st, 009 by Yang. Causal Expression of AR Let φz : αz βz. Zeros of φ are α and β, both of which are greater than in absolute value by the assumption in the question. By the theorem
More informationMultivariate Time Series: VAR(p) Processes and Models
Multivariate Time Series: VAR(p) Processes and Models A VAR(p) model, for p > 0 is X t = φ 0 + Φ 1 X t 1 + + Φ p X t p + A t, where X t, φ 0, and X t i are k-vectors, Φ 1,..., Φ p are k k matrices, with
More informationSTAT Financial Time Series
STAT 6104 - Financial Time Series Chapter 4 - Estimation in the time Domain Chun Yip Yau (CUHK) STAT 6104:Financial Time Series 1 / 46 Agenda 1 Introduction 2 Moment Estimates 3 Autoregressive Models (AR
More informationEconometrics II Heij et al. Chapter 7.1
Chapter 7.1 p. 1/2 Econometrics II Heij et al. Chapter 7.1 Linear Time Series Models for Stationary data Marius Ooms Tinbergen Institute Amsterdam Chapter 7.1 p. 2/2 Program Introduction Modelling philosophy
More informationThis note introduces some key concepts in time series econometrics. First, we
INTRODUCTION TO TIME SERIES Econometrics 2 Heino Bohn Nielsen September, 2005 This note introduces some key concepts in time series econometrics. First, we present by means of examples some characteristic
More informationIntroduction to Stochastic processes
Università di Pavia Introduction to Stochastic processes Eduardo Rossi Stochastic Process Stochastic Process: A stochastic process is an ordered sequence of random variables defined on a probability space
More informationAR, MA and ARMA models
AR, MA and AR by Hedibert Lopes P Based on Tsay s Analysis of Financial Time Series (3rd edition) P 1 Stationarity 2 3 4 5 6 7 P 8 9 10 11 Outline P Linear Time Series Analysis and Its Applications For
More informationTime Series 2. Robert Almgren. Sept. 21, 2009
Time Series 2 Robert Almgren Sept. 21, 2009 This week we will talk about linear time series models: AR, MA, ARMA, ARIMA, etc. First we will talk about theory and after we will talk about fitting the models
More informationLecture 4a: ARMA Model
Lecture 4a: ARMA Model 1 2 Big Picture Most often our goal is to find a statistical model to describe real time series (estimation), and then predict the future (forecasting) One particularly popular model
More informationEconomics 618B: Time Series Analysis Department of Economics State University of New York at Binghamton
Problem Set #1 1. Generate n =500random numbers from both the uniform 1 (U [0, 1], uniformbetween zero and one) and exponential λ exp ( λx) (set λ =2and let x U [0, 1]) b a distributions. Plot the histograms
More informationCh 4. Models For Stationary Time Series. Time Series Analysis
This chapter discusses the basic concept of a broad class of stationary parametric time series models the autoregressive moving average (ARMA) models. Let {Y t } denote the observed time series, and {e
More informationChapter 8: Model Diagnostics
Chapter 8: Model Diagnostics Model diagnostics involve checking how well the model fits. If the model fits poorly, we consider changing the specification of the model. A major tool of model diagnostics
More informationUnit Root and Cointegration
Unit Root and Cointegration Carlos Hurtado Department of Economics University of Illinois at Urbana-Champaign hrtdmrt@illinois.edu Oct 7th, 016 C. Hurtado (UIUC - Economics) Applied Econometrics On the
More informationRobust Backtesting Tests for Value-at-Risk Models
Robust Backtesting Tests for Value-at-Risk Models Jose Olmo City University London (joint work with Juan Carlos Escanciano, Indiana University) Far East and South Asia Meeting of the Econometric Society
More informationTime Series Econometrics 4 Vijayamohanan Pillai N
Time Series Econometrics 4 Vijayamohanan Pillai N Vijayamohan: CDS MPhil: Time Series 5 1 Autoregressive Moving Average Process: ARMA(p, q) Vijayamohan: CDS MPhil: Time Series 5 2 1 Autoregressive Moving
More information7. Integrated Processes
7. Integrated Processes Up to now: Analysis of stationary processes (stationary ARMA(p, q) processes) Problem: Many economic time series exhibit non-stationary patterns over time 226 Example: We consider
More informationOutline. Nature of the Problem. Nature of the Problem. Basic Econometrics in Transportation. Autocorrelation
1/30 Outline Basic Econometrics in Transportation Autocorrelation Amir Samimi What is the nature of autocorrelation? What are the theoretical and practical consequences of autocorrelation? Since the assumption
More information2. An Introduction to Moving Average Models and ARMA Models
. An Introduction to Moving Average Models and ARMA Models.1 White Noise. The MA(1) model.3 The MA(q) model..4 Estimation and forecasting of MA models..5 ARMA(p,q) models. The Moving Average (MA) models
More informationEconometría 2: Análisis de series de Tiempo
Econometría 2: Análisis de series de Tiempo Karoll GOMEZ kgomezp@unal.edu.co http://karollgomez.wordpress.com Segundo semestre 2016 III. Stationary models 1 Purely random process 2 Random walk (non-stationary)
More informationSTAT 443 Final Exam Review. 1 Basic Definitions. 2 Statistical Tests. L A TEXer: W. Kong
STAT 443 Final Exam Review L A TEXer: W Kong 1 Basic Definitions Definition 11 The time series {X t } with E[X 2 t ] < is said to be weakly stationary if: 1 µ X (t) = E[X t ] is independent of t 2 γ X
More informationProblem set 1 - Solutions
EMPIRICAL FINANCE AND FINANCIAL ECONOMETRICS - MODULE (8448) Problem set 1 - Solutions Exercise 1 -Solutions 1. The correct answer is (a). In fact, the process generating daily prices is usually assumed
More information7. Integrated Processes
7. Integrated Processes Up to now: Analysis of stationary processes (stationary ARMA(p, q) processes) Problem: Many economic time series exhibit non-stationary patterns over time 226 Example: We consider
More informationNonlinear time series
Based on the book by Fan/Yao: Nonlinear Time Series Robert M. Kunst robert.kunst@univie.ac.at University of Vienna and Institute for Advanced Studies Vienna October 27, 2009 Outline Characteristics of
More informationFINANCIAL ECONOMETRICS AND EMPIRICAL FINANCE -MODULE2 Midterm Exam Solutions - March 2015
FINANCIAL ECONOMETRICS AND EMPIRICAL FINANCE -MODULE2 Midterm Exam Solutions - March 205 Time Allowed: 60 minutes Family Name (Surname) First Name Student Number (Matr.) Please answer all questions by
More informationForecasting with ARMA
Forecasting with ARMA Eduardo Rossi University of Pavia October 2013 Rossi Forecasting Financial Econometrics - 2013 1 / 32 Mean Squared Error Linear Projection Forecast of Y t+1 based on a set of variables
More informationIDENTIFICATION OF ARMA MODELS
IDENTIFICATION OF ARMA MODELS A stationary stochastic process can be characterised, equivalently, by its autocovariance function or its partial autocovariance function. It can also be characterised by
More informationClassic Time Series Analysis
Classic Time Series Analysis Concepts and Definitions Let Y be a random number with PDF f Y t ~f,t Define t =E[Y t ] m(t) is known as the trend Define the autocovariance t, s =COV [Y t,y s ] =E[ Y t t
More informationLinear Model Under General Variance Structure: Autocorrelation
Linear Model Under General Variance Structure: Autocorrelation A Definition of Autocorrelation In this section, we consider another special case of the model Y = X β + e, or y t = x t β + e t, t = 1,..,.
More informationECON3327: Financial Econometrics, Spring 2016
ECON3327: Financial Econometrics, Spring 2016 Wooldridge, Introductory Econometrics (5th ed, 2012) Chapter 11: OLS with time series data Stationary and weakly dependent time series The notion of a stationary
More informationLecture 5: Unit Roots, Cointegration and Error Correction Models The Spurious Regression Problem
Lecture 5: Unit Roots, Cointegration and Error Correction Models The Spurious Regression Problem Prof. Massimo Guidolin 20192 Financial Econometrics Winter/Spring 2018 Overview Stochastic vs. deterministic
More informationLecture 3: Autoregressive Moving Average (ARMA) Models and their Practical Applications
Lecture 3: Autoregressive Moving Average (ARMA) Models and their Practical Applications Prof. Massimo Guidolin 20192 Financial Econometrics Winter/Spring 2018 Overview Moving average processes Autoregressive
More informationCircle the single best answer for each multiple choice question. Your choice should be made clearly.
TEST #1 STA 4853 March 6, 2017 Name: Please read the following directions. DO NOT TURN THE PAGE UNTIL INSTRUCTED TO DO SO Directions This exam is closed book and closed notes. There are 32 multiple choice
More informationA SARIMAX coupled modelling applied to individual load curves intraday forecasting
A SARIMAX coupled modelling applied to individual load curves intraday forecasting Frédéric Proïa Workshop EDF Institut Henri Poincaré - Paris 05 avril 2012 INRIA Bordeaux Sud-Ouest Institut de Mathématiques
More informationTime Series Models and Inference. James L. Powell Department of Economics University of California, Berkeley
Time Series Models and Inference James L. Powell Department of Economics University of California, Berkeley Overview In contrast to the classical linear regression model, in which the components of the
More informationE 4160 Autumn term Lecture 9: Deterministic trends vs integrated series; Spurious regression; Dickey-Fuller distribution and test
E 4160 Autumn term 2016. Lecture 9: Deterministic trends vs integrated series; Spurious regression; Dickey-Fuller distribution and test Ragnar Nymoen Department of Economics, University of Oslo 24 October
More informationTrending Models in the Data
April 13, 2009 Spurious regression I Before we proceed to test for unit root and trend-stationary models, we will examine the phenomena of spurious regression. The material in this lecture can be found
More informationECON/FIN 250: Forecasting in Finance and Economics: Section 7: Unit Roots & Dickey-Fuller Tests
ECON/FIN 250: Forecasting in Finance and Economics: Section 7: Unit Roots & Dickey-Fuller Tests Patrick Herb Brandeis University Spring 2016 Patrick Herb (Brandeis University) Unit Root Tests ECON/FIN
More informationStat 5100 Handout #12.e Notes: ARIMA Models (Unit 7) Key here: after stationary, identify dependence structure (and use for forecasting)
Stat 5100 Handout #12.e Notes: ARIMA Models (Unit 7) Key here: after stationary, identify dependence structure (and use for forecasting) (overshort example) White noise H 0 : Let Z t be the stationary
More informationLINEAR STOCHASTIC MODELS
LINEAR STOCHASTIC MODELS Let {x τ+1,x τ+2,...,x τ+n } denote n consecutive elements from a stochastic process. If their joint distribution does not depend on τ, regardless of the size of n, then the process
More informationSingle Equation Linear GMM with Serially Correlated Moment Conditions
Single Equation Linear GMM with Serially Correlated Moment Conditions Eric Zivot October 28, 2009 Univariate Time Series Let {y t } be an ergodic-stationary time series with E[y t ]=μ and var(y t )
More informationAPPLIED ECONOMETRIC TIME SERIES 4TH EDITION
APPLIED ECONOMETRIC TIME SERIES 4TH EDITION Chapter 2: STATIONARY TIME-SERIES MODELS WALTER ENDERS, UNIVERSITY OF ALABAMA Copyright 2015 John Wiley & Sons, Inc. Section 1 STOCHASTIC DIFFERENCE EQUATION
More informationEconometrics. Week 11. Fall Institute of Economic Studies Faculty of Social Sciences Charles University in Prague
Econometrics Week 11 Institute of Economic Studies Faculty of Social Sciences Charles University in Prague Fall 2012 1 / 30 Recommended Reading For the today Advanced Time Series Topics Selected topics
More informationChapter 6: Model Specification for Time Series
Chapter 6: Model Specification for Time Series The ARIMA(p, d, q) class of models as a broad class can describe many real time series. Model specification for ARIMA(p, d, q) models involves 1. Choosing
More informationLesson 2: Analysis of time series
Lesson 2: Analysis of time series Time series Main aims of time series analysis choosing right model statistical testing forecast driving and optimalisation Problems in analysis of time series time problems
More information10. Time series regression and forecasting
10. Time series regression and forecasting Key feature of this section: Analysis of data on a single entity observed at multiple points in time (time series data) Typical research questions: What is the
More informationEconometrics 2, Class 1
Econometrics 2, Class Problem Set #2 September 9, 25 Remember! Send an email to let me know that you are following these classes: paul.sharp@econ.ku.dk That way I can contact you e.g. if I need to cancel
More informationAutoregressive Moving Average (ARMA) Models and their Practical Applications
Autoregressive Moving Average (ARMA) Models and their Practical Applications Massimo Guidolin February 2018 1 Essential Concepts in Time Series Analysis 1.1 Time Series and Their Properties Time series:
More informationStationary and nonstationary variables
Stationary and nonstationary variables Stationary variable: 1. Finite and constant in time expected value: E (y t ) = µ < 2. Finite and constant in time variance: Var (y t ) = σ 2 < 3. Covariance dependent
More informationTime series models in the Frequency domain. The power spectrum, Spectral analysis
ime series models in the Frequency domain he power spectrum, Spectral analysis Relationship between the periodogram and the autocorrelations = + = ( ) ( ˆ α ˆ ) β I Yt cos t + Yt sin t t= t= ( ( ) ) cosλ
More informationCh. 15 Forecasting. 1.1 Forecasts Based on Conditional Expectations
Ch 15 Forecasting Having considered in Chapter 14 some of the properties of ARMA models, we now show how they may be used to forecast future values of an observed time series For the present we proceed
More informationFORECASTING SUGARCANE PRODUCTION IN INDIA WITH ARIMA MODEL
FORECASTING SUGARCANE PRODUCTION IN INDIA WITH ARIMA MODEL B. N. MANDAL Abstract: Yearly sugarcane production data for the period of - to - of India were analyzed by time-series methods. Autocorrelation
More informationTesting for Unit Roots with Cointegrated Data
Discussion Paper No. 2015-57 August 19, 2015 http://www.economics-ejournal.org/economics/discussionpapers/2015-57 Testing for Unit Roots with Cointegrated Data W. Robert Reed Abstract This paper demonstrates
More informationEcon 423 Lecture Notes: Additional Topics in Time Series 1
Econ 423 Lecture Notes: Additional Topics in Time Series 1 John C. Chao April 25, 2017 1 These notes are based in large part on Chapter 16 of Stock and Watson (2011). They are for instructional purposes
More information10) Time series econometrics
30C00200 Econometrics 10) Time series econometrics Timo Kuosmanen Professor, Ph.D. 1 Topics today Static vs. dynamic time series model Suprious regression Stationary and nonstationary time series Unit
More information