Economics - Research Publications

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End date: 2005 × Start date: 2005 × Type: Preprint × Subject: C12 - Hypothesis Testing ×

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    Equity return and short-term interest rate volatility: level effects and asymmetric dynamics
    Henry, Olan T. ; OLEKALNS, NILSS ; Suardi, Sandy ( 2005-07)
    Evidence suggests that short-term interest rate volatility peakswith the level of short rates, while equity volatility responds asymmetricallyto positive and negative shocks. We present an LM basedtest that distinguishes between level effects and asymmetry in volatilitywhich is robust to the presence of unidentified nuisance parametersunder the null. There is strong evidence of a level effect and asymmetricresponse in the relationship between S&P 500 Index returns and3-month US Treasury Bills. The conditional covariance depends onthe level of the short rate which has implications for hedging equityreturns against short term interest rate movements.
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    Small Concentration Asymptotics andInstrumental Variables Inference
    Poskitt, D. S. ; Skeels, Christopher L. ( 2005-09)
    Poskitt and Skeels (2005) provide a new approximation to the sampling distributionof the IV estimator in a simultaneous equations model, the approximation isappropriate when the concentration parameter associated with the reduced formmodel is small. We present approximations to the sampling distributions of variousfunctions of the IV estimator based upon small-concentration asymptotics, andinvestigate hypothesis testing procedures and confidence region construction usingthese approximations. We explore the relationship between our work and the Kstatistic of Kleibergen (2002) and demonstrate that our results can be used to explainthe sampling behaviour of the K statistic in simultaneous equations modelswhere identification is weak.