15,517 research outputs found
The Incidental Parameters Problem in Testing for Remaining Cross-section Correlation
In this paper we consider the properties of the Pesaran (2004, 2015a) CD test
for cross-section correlation when applied to residuals obtained from panel
data models with many estimated parameters. We show that the presence of
period-specific parameters leads the CD test statistic to diverge as length of
the time dimension of the sample grows. This result holds even if cross-section
dependence is correctly accounted for and hence constitutes an example of the
Incidental Parameters Problem. The relevance of this problem is investigated
both for the classical Time Fixed Effects estimator as well as the Common
Correlated Effects estimator of Pesaran (2006). We suggest a weighted CD test
statistic which re-establishes standard normal inference under the null
hypothesis. Given the widespread use of the CD test statistic to test for
remaining cross-section correlation, our results have far reaching implications
for empirical researchers.Comment: 84 pages, 11 table
Semiparametric Bayesian inference in multiple equation models
This paper outlines an approach to Bayesian semiparametric regression in multiple equation models which can be used to carry out inference in seemingly unrelated regressions or simultaneous equations models with nonparametric components. The approach treats the points on each nonparametric regression line as unknown parameters and uses a prior on the degree of smoothness of each line to ensure valid posterior inference despite the fact that the number of parameters is greater than the number of observations. We develop an empirical Bayesian approach that allows us to estimate the prior smoothing hyperparameters from the data. An advantage of our semiparametric model is that it is written as a seemingly unrelated regressions model with independent normal-Wishart prior. Since this model is a common one, textbook results for posterior inference, model comparison, prediction and posterior computation are immediately available. We use this model in an application involving a two-equation structural model drawn from the labour and returns to schooling literatures
A New Materials and Design Approach for Roads, Bridges, Pavement, and Concrete
Increased understanding of demand for transport energy and how to improve road pavement materials would enable decision makers to make environmental, financial, and other positive changes in future planning and design of roads, bridges, and other important transportation structures. This research comprises three studies focused on pavement materials and a fourth study that examines energy demand within the road transportation sector. These studies are as follows:
1. A techno-economic study of ground tire rubber as an asphalt modifier;
2. A computational fluid dynamics analysis comparing the urban heat island effect of two different pavement materials – asphalt and Portland Cement Concrete;
3. A new approach that modifies the surface of ground tire rubber using low-cost chemicals and treatment methods to be used in asphalt applications; and
4. Analysis of road transport energy demand in California and the United States.
The findings of these studies include that 1. GTR is an effective and economically suitable additive for modified asphalt, 2. the suitability of PCC pavements in urban settings should be reexamined, 3. Surface modification of GTR materials can improve compatibilization of particles for the manufacture of asphalt materials, and 4. gasoline sales are generally price inelastic in both the U.S. and California. Ultimately, these four studies improve understanding of road pavement materials and transport energy demand. They lay out important information about the future of the relationship between materials and design in the transportation industry. These findings may be used by engineers, policymakers, and others in the industry to better consider implications of decisions involved in design, creation, and modification of structures using pavement and concrete, including roads, bridges, etc
Smooth Transition Regression Models in UK Stock Returns
This paper models UK stock market returns in a smooth transition regression (STR) framework. We employ a variety of financial and macroeconomic series that are assumed to influence UK stock returns, namely GDP, interest rates, inflation, money supply and US stock prices. We estimate STR models where the linearity hypothesis is strongly rejected for at least one transition variable. These non-linear models describe the in-sample movements of the stock returns series better than the corresponding linear model. Moreover, the US stock market appears to play an important role in determining the UK stock market returns regime.
Projected principal component analysis in factor models
This paper introduces a Projected Principal Component Analysis
(Projected-PCA), which employs principal component analysis to the projected
(smoothed) data matrix onto a given linear space spanned by covariates. When it
applies to high-dimensional factor analysis, the projection removes noise
components. We show that the unobserved latent factors can be more accurately
estimated than the conventional PCA if the projection is genuine, or more
precisely, when the factor loading matrices are related to the projected linear
space. When the dimensionality is large, the factors can be estimated
accurately even when the sample size is finite. We propose a flexible
semiparametric factor model, which decomposes the factor loading matrix into
the component that can be explained by subject-specific covariates and the
orthogonal residual component. The covariates' effects on the factor loadings
are further modeled by the additive model via sieve approximations. By using
the newly proposed Projected-PCA, the rates of convergence of the smooth factor
loading matrices are obtained, which are much faster than those of the
conventional factor analysis. The convergence is achieved even when the sample
size is finite and is particularly appealing in the
high-dimension-low-sample-size situation. This leads us to developing
nonparametric tests on whether observed covariates have explaining powers on
the loadings and whether they fully explain the loadings. The proposed method
is illustrated by both simulated data and the returns of the components of the
S&P 500 index.Comment: Published at http://dx.doi.org/10.1214/15-AOS1364 in the Annals of
Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical
Statistics (http://www.imstat.org
Focused information criterion and model averaging for generalized additive partial linear models
We study model selection and model averaging in generalized additive partial
linear models (GAPLMs). Polynomial spline is used to approximate nonparametric
functions. The corresponding estimators of the linear parameters are shown to
be asymptotically normal. We then develop a focused information criterion (FIC)
and a frequentist model average (FMA) estimator on the basis of the
quasi-likelihood principle and examine theoretical properties of the FIC and
FMA. The major advantages of the proposed procedures over the existing ones are
their computational expediency and theoretical reliability. Simulation
experiments have provided evidence of the superiority of the proposed
procedures. The approach is further applied to a real-world data example.Comment: Published in at http://dx.doi.org/10.1214/10-AOS832 the Annals of
Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical
Statistics (http://www.imstat.org
Investigating uncertainty in macroeconomic forecasts by stochastic simulation
We investigate four sources of uncertainty with CPB’s macroeconomic model SAFFIER: provisional data, exogenous variables, model parameters and residuals of behavioural equations. Uncertainty is an inherent attribute of any forecast. We apply a Monte Carlo simulation technique to calculate standard errors for the short-term and medium-term horizon for GDP and eight other macroeconomic variables. The results demonstrate that the main contribution to the total variance of a medium-term forecast emanates from the uncertainty in the exogenous variables. For the short-term forecast both exogenous variables and provisional data are most relevant.
Bayesian Semiparametric Inference in Multiple Equation Models
This paper outlines an approach to Bayesian semiparametric regression in multiple equation models which can be used to carry out inference in seemingly unrelated regressions or simultaneous equations models with nonparametric components. The approach treats the points on each nonparametric regression line as unknown parameters and uses a prior on the degree of smoothness of each line to ensure valid posterior inference despite the fact that the number of parameters is greater than the number of observations. We derive an empirical Bayesian approach that allows us to estimate the prior smoothing hyperparameters from the data. An advantage of our semiparametric model is that it is written as a seemingly unrelated regressions model with independent Normal-Wishart prior. Since this model is a common one, textbook results for posterior inference, model comparison, prediction and posterior computation are immediately available. We use this model in an application involving a two-equation structural model drawn from the labor and returns to schooling literatures.nonparametric regression; nonparametric instrumental variables; SUR model; endogeneity; nonlinear simultaneous equations
What is the best risk measure in practice? A comparison of standard measures
Expected Shortfall (ES) has been widely accepted as a risk measure that is
conceptually superior to Value-at-Risk (VaR). At the same time, however, it has
been criticised for issues relating to backtesting. In particular, ES has been
found not to be elicitable which means that backtesting for ES is less
straightforward than, e.g., backtesting for VaR. Expectiles have been suggested
as potentially better alternatives to both ES and VaR. In this paper, we
revisit commonly accepted desirable properties of risk measures like coherence,
comonotonic additivity, robustness and elicitability. We check VaR, ES and
Expectiles with regard to whether or not they enjoy these properties, with
particular emphasis on Expectiles. We also consider their impact on capital
allocation, an important issue in risk management. We find that, despite the
caveats that apply to the estimation and backtesting of ES, it can be
considered a good risk measure. As a consequence, there is no sufficient
evidence to justify an all-inclusive replacement of ES by Expectiles in
applications. For backtesting ES, we propose an empirical approach that
consists in replacing ES by a set of four quantiles, which should allow to make
use of backtesting methods for VaR.
Keywords: Backtesting; capital allocation; coherence; diversification;
elicitability; expected shortfall; expectile; forecasts; probability integral
transform (PIT); risk measure; risk management; robustness; value-at-riskComment: 27 pages, 1 tabl
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