Regime Switches in the Risk-Return Trade-Off Staff Working Paper 2013-51 Eric Ghysels, Pierre Guérin, Massimiliano Marcellino This paper deals with the estimation of the risk-return trade-off. We use a MIDAS model for the conditional variance and allow for possible switches in the risk-return relation through a Markov-switching specification. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Financial markets JEL Code(s): G, G1, G10, G12
The Financialization of Food? Staff Working Paper 2013-39 Valentina G. Bruno, Bahattin Buyuksahin, Michel A. Robe Commodity-equity and cross-commodity return co-movements rose dramatically after the 2008 financial crisis. This development took place following what has been dubbed the “financialization” of commodity markets. Content Type(s): Staff research, Staff working papers Research Topic(s): International topics, Recent economic and financial developments JEL Code(s): G, G1, G12, G13, Q, Q1, Q11, Q13
Which Parametric Model for Conditional Skewness? Staff Working Paper 2013-32 Bruno Feunou, Mohammad R. Jahan-Parvar, Roméo Tedongap This paper addresses an existing gap in the developing literature on conditional skewness. We develop a simple procedure to evaluate parametric conditional skewness models. This procedure is based on regressing the realized skewness measures on model-implied conditional skewness values. Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C2, C22, C5, C51, G, G1, G12, G15
Multivariate Tests of Mean-Variance Efficiency and Spanning with a Large Number of Assets and Time-Varying Covariances Staff Working Paper 2013-16 Sermin Gungor, Richard Luger We develop a finite-sample procedure to test for mean-variance efficiency and spanning without imposing any parametric assumptions on the distribution of model disturbances. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Econometric and statistical methods, Financial markets JEL Code(s): C, C1, C12, C15, C3, C33, G, G1, G11, G12
Jump-Diffusion Long-Run Risks Models, Variance Risk Premium and Volatility Dynamics Staff Working Paper 2013-12 Jianjian Jin This paper calibrates a class of jump-diffusion long-run risks (LRR) models to quantify how well they can jointly explain the equity risk premium and the variance risk premium in the U.S. financial markets, and whether they can generate realistic dynamics of risk-neutral and realized volatilities. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Economic models JEL Code(s): G, G1, G12, G17
A New Linear Estimator for Gaussian Dynamic Term Structure Models Staff Working Paper 2013-10 Antonio Diez de los Rios This paper proposes a novel regression-based approach to the estimation of Gaussian dynamic term structure models that avoids numerical optimization. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Econometric and statistical methods, Interest rates JEL Code(s): C, C1, C13, E, E4, E43, G, G1, G12
Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy Staff Working Paper 2012-41 Jean-Sébastien Fontaine Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, E44, E47, G, G1, G12, G13
Forecasting Inflation and the Inflation Risk Premiums Using Nominal Yields Staff Working Paper 2012-37 Bruno Feunou, Jean-Sébastien Fontaine We provide a decomposition of nominal yields into real yields, expectations of future inflation and inflation risk premiums when real bonds or inflation swaps are unavailable or unreliable due to their relative illiquidity. Content Type(s): Staff research, Staff working papers Research Topic(s): Asset pricing, Econometric and statistical methods, Inflation and prices, Interest rates JEL Code(s): E, E4, E43, E47, G, G1, G12
August 16, 2012 Global Risk Premiums and the Transmission of Monetary Policy Bank of Canada Review - Summer 2012 Gregory Bauer, Antonio Diez de los Rios An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool. Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Asset pricing, Financial markets, Monetary policy transmission JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12, G15
The U.S.-Dollar Supranational Zero-Coupon Curve Staff Discussion Paper 2012-5 Francisco Rivadeneyra The author describes the construction of the U.S.-dollar-denominated zero-coupon curve for the supranational asset class from 1995 to 2010. He uses yield data from a crosssection of bonds issued by AAA-rated supranational entities to fit the Svensson (1995) term-structure model. Content Type(s): Staff research, Staff discussion papers Research Topic(s): Asset pricing, Financial markets JEL Code(s): G, G1, G12, G15