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Working Paper
The Response of Stock Market Volatility to Futures-Based Measures of Monetary Policy Shocks
Gospodinov, Nikolay; Jamali, Ibrahim (2014-08-01)
In this paper, we investigate the dynamic response of stock market volatility to changes in monetary policy. Using a vector autoregressive model, our findings reveal a significant and asymmetric response of stock returns and volatility to monetary policy shocks. Although the increase in the volatility risk premium, futures-trading volume, and leverage appear to contribute to a short-term increase in volatility, the longer-term dynamics of volatility are dominated by monetary policy's effect on fundamentals. The estimation results from a bivariate VAR-GARCH model suggest that the Fed does not ...
FRB Atlanta Working Paper , Paper 2014-14

Working Paper
Estimating Loss Given Default from CDS under Weak Identification
Liu, Lily (2017-05-08)
This paper combines a term structure model of credit default swaps (CDS) with weak-identification robust methods to jointly estimate the probability of default and the loss given default of the underlying firm. The model is not globally identified because it forgoes parametric time series restrictions that have aided identification in previous studies, but that are also difficult to verify in the data. The empirical results show that informative (small) confidence sets for loss given default are estimated for half of the firm-months in the sample, and most of these are much lower than and do ...
Supervisory Research and Analysis Working Papers , Paper RPA 17-1

Working Paper
Scenario-based Quantile Connectedness of the U.S. Interbank Liquidity Risk Network
Bai, Jushan; Vojtech, Cindy M.; Ando, Tomohiro; Lu, Lina (2024-04-18)
We characterize the U.S. interbank liquidity risk network based on a supervisory dataset, using a scenario-based quantile network connectedness approach. In terms of methodology, we consider a quantile vector autoregressive model with unobserved heterogeneity and propose a Bayesian nuclear norm estimation method. A common factor structure is employed to deal with unobserved heterogeneity that may exhibit endogeneity within the network. Then we develop a scenario-based quantile network connectedness framework by accommodating various economic scenarios, through a scenario-based moving average ...
Supervisory Research and Analysis Working Papers , Paper SRA 24-02

Working Paper
The dynamic factor network model with an application to global credit risk
Koopman, Siem Jan; Bräuning, Falk (2016-10-31)
We introduce a dynamic network model with probabilistic link functions that depend on stochastically time-varying parameters. We adopt the widely used blockmodel framework and allow the high-dimensional vector of link probabilities to be a function of a low-dimensional set of dynamic factors. The resulting dynamic factor network model is straightforward and transparent by nature. However, parameter estimation, signal extraction of the dynamic factors, and the econometric analysis generally are intricate tasks for which simulation-based methods are needed. We provide feasible and practical ...
Working Papers , Paper 16-13

Working Paper
Undiversifying during Crises: Is It a Good Idea?
Giuzio, Margherita; Paterlini, Sandra (2016-12-02)
High levels of correlation among financial assets, as well as extreme losses, are typical during crisis periods. In such situations, quantitative asset allocation models are often not robust enough to deal with estimation errors and lead to identifying underperforming investment strategies. It is an open question if in such periods, it would be better to hold diversified portfolios, such as the equally weighted, rather than investing in few selected assets. In this paper, we show that alternative strategies developed by constraining the level of diversification of the portfolio, by means of a ...
Working Papers (Old Series) , Paper 1628

Working Paper
Mildly Explosive Dynamics in U.S. Fixed Income Markets
De Pace, Pierangelo; Contessi, Silvio; Guidolin, Massimo (2017-08-01)
We use a recently developed right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior in the weekly time series of seven U.S. fixed income yield spreads between September 2002 and January 2015. We find statistically significant evidence of such behavior in six of these spreads. Mild explosivity migrates from short-term funding markets to more volatile medium- and long-term markets during the Great Financial Crisis. For some markets, we statistically validate the conjecture, originally suggested by Gorton (2009a,b), that ...
Globalization Institute Working Papers , Paper 324

Working Paper
Asian financial linkage: macro-finance dissonance
Takahashi, Koji; Fujiwara, Ippei (2011)
How are Asian financial markets interlinked and how are they linked to markets in developed countries? What is the main driver of fluctuations in Asian financial markets as well as real economic activities? In order to answer these questions, we estimate the spillover index proposed by Diebold and Yilmaz (2009) and gauge the degree of interactions in both financial markets and real economic activities among Asian economies.> ; We first show that the degree of the international spillover in stock markets is like cookie-cutter products, namely, uniform, irrespective of the groups of countries, ...
Globalization Institute Working Papers , Paper 92

Working Paper
Texas Manufacturing Outlook Survey: survey methodology and performance
Cañas, Jesus; Kerr, Emily (2014-12-01)
The Texas Manufacturing Outlook Survey (TMOS) is a monthly survey of area manufacturers conducted by the Federal Reserve Bank of Dallas. TMOS indexes provide timely information on manufacturing activity in Texas, which is useful for understanding broader changes in regional economic conditions. This paper describes the survey methodology and analyzes the explanatory and predictive power of TMOS indexes with regard to other measures of state economic activity. Regression analysis shows that several TMOS indexes successfully explain monthly changes in Texas employment and quarterly changes in ...
Working Papers , Paper 1416

Working Paper
The Contribution of Jump Activity and Sign to Forecasting Stock Price Volatility
Bu, Ruijun; Tsionas, Mike G.; Murphy, Anthony; Hizmeri, Rodrigo; Izzeldin, Marwan (2020-11-17)
This paper proposes a novel approach to decompose realized jump measures by type of activity (finite/infinite) and by sign. We also provide noise-robust versions of the ABD jump test (Andersen et al. 2007) and realized semivariance measures for use at high frequency sampling intervals. The volatility forecasting exercise involves the use of different types of jumps, forecast horizons, sampling frequencies, calendar and transaction time-based sampling schemes, as well as standard and noise-robust volatility measures. We find that infinite (finite) jumps improve the forecasts at shorter ...
Working Papers , Paper 1902

Working Paper
The Contribution of Jump Signs and Activity to Forecasting Stock Price Volatility
Bu, Ruijun; Tsionas, Mike G.; Murphy, Anthony; Hizmeri, Rodrigo; Izzeldin, Marwan (2022-12-17)
We propose a novel approach to decompose realized jump measures by type of activity (finite/infinite) and sign, and also provide noise-robust versions of the ABD jump test (Andersen et al., 2007b) and realized semivariance measures. We find that infinite (finite) jumps improve the forecasts at shorter (longer) horizons; but the contribution of signed jumps is limited. As expected, noise-robust measures deliver substantial forecast improvements at higher sampling frequencies, although standard volatility measures at the 300-second frequency generate the smallest MSPEs. Since no single model ...
Working Papers , Paper 1902

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