A Markov Switching Re-evaluation of Event-Study Methodology

This paper reconsiders event-study methodology in light of evidences showing that Cumulative Abnormal Return (CAR) can result in misleading inferences about financial market efficiency and pre(post)-event behavior. In particular, CAR can be biased downward, due to the increased volatility on the event day and within the event window. We propose the use of Markov Switching Models to capture the effect of an event on security prices. We apply the proposed methodology to a set of 45 historical series on Credit Default Swap (CDS) quotes subject to multiple credit events, such as reviews for downgrading. Since CDSs provide insurance against the default of a particular company or sovereign entity, this study checks if market anticipates reviews for downgrading and evaluates the time period the announcements lag behind the market

Model-based tests for simplification of lattice processes

Separable processes represent a convenient class of models for data collected on a regular rectangular lattice. Three model-based tests, for testing separability and testing axial symmetry and separability together, are presented. These are shown to be much more powerful than existing model-free tests using the sample periodogram, provided the model assumptions hold. A simulation study also suggests that these tests are not very sensitive to small departures from the assumed process

The severity of pandemic H1N1 influenza in the United States, from April to July 2009: A Bayesian analysis

Background: Accurate measures of the severity of pandemic (H1N1) 2009 influenza (pH1N1) are needed to assess the likely impact of an anticipated resurgence in the autumn in the Northern Hemisphere. Severity has been difficult to measure because jurisdictions with large numbers of deaths and other severe outcomes have had too many cases to assess the total number with confidence. Also, detection of severe cases may be more likely, resulting in overestimation of the severity of an average case. We sought to estimate the probabilities that symptomatic infection would lead to hospitalization, ICU admission, and death by combining data from multiple sources. Methods and Findings: We used complementary data from two US cities: Milwaukee attempted to identify cases of medically attended infection whether or not they required hospitalization, while New York City focused on the identification of hospitalizations, intensive care admission or mechanical ventilation (hereafter, ICU), and deaths. New York data were used to estimate numerators for ICU and death, and two sources of data - medically attended cases in Milwaukee or self-reported influenza-like illness (ILI) in New York - were used to estimate ratios of symptomatic cases to hospitalizations. Combining these data with estimates of the fraction detected for each level of severity, we estimated the proportion of symptomatic patients who died (symptomatic case-fatality ratio, sCFR), required ICU (sCIR), and required hospitalization (sCHR), overall and by age category. Evidence, prior information, and associated uncertainty were analyzed in a Bayesian evidence synthesis framework. Using medically attended cases and estimates of the proportion of symptomatic cases medically attended, we estimated an sCFR of 0.048% (95% credible interval [CI] 0.026%-0.096%), sCIR of 0.239% (0.134%-0.458%), and sCHR of 1.44% (0.83%-2.64%). Using self-reported ILI, we obtained estimates approximately 7-96lower. sCFR and sCIR appear to be highest in persons aged 18 y and older, and lowest in children aged 5-17 y. sCHR appears to be lowest in persons aged 5-17; our data were too sparse to allow us to determine the group in which it was the highest. Conclusions: These estimates suggest that an autumn-winter pandemic wave of pH1N1 with comparable severity per case could lead to a number of deaths in the range from considerably below that associated with seasonal influenza to slightly higher, but with the greatest impact in children aged 0-4 and adults 18-64. These estimates of impact depend on assumptions about total incidence of infection and would be larger if incidence of symptomatic infection were higher or shifted toward adults, if viral virulence increased, or if suboptimal treatment resulted from stress on the health care system; numbers would decrease if the total proportion of the population symptomatically infected were lower than assumed.published_or_final_versio

The economics of debt clearing mechanisms

We examine the evolution of decentralized clearinghouse mechanisms from the 13th to the 18th century; in particular, we explore the clearing of non- or limitedtradable debts like bills of exchange. We construct a theoretical model of these clearinghouse mechanisms, similar to the models in the theoretical matching literature, and show that specific decentralized multilateral clearing algorithms known as rescontre, skontrieren or virement des parties used by merchants were efficient in specific historical contexts. We can explain both the evolutionary self-organizing emergence of late medieval and early modern fairs, and its robustness during the 17th and 18th century

Bayesian hidden Markov models for financial data

Hidden Markov Models, also known as Markov Switching Models, can be considered an extension of mixture models, allowing for dependent observations. The main problem associated with Hidden Markov Models is represented by the choice of the number of regimes, i.e. the number of the generating data processes, which differ one from another just for the value of the parameters. Applying a hierarchical Bayesian framework, we show that Reversible Jump Markov Chain Monte Carlo techniques can be used to estimate the parameters of the model, as well as the number of regimes, and to simulate the posterior predictive densities of future observations. Assuming a mixture of normal distributions, we estimate all the parameters of the model using a well known exchange rate data set

Testing axial symmetry and separability of lattice processes

Data collected on a rectangular lattice are common in many areas, and models used often make simplifying assumptions. These assumptions include axial symmetry in the spatial process and separability. Some di0erent methods for testing axial symmetry and separability are considered. Using the sample periodogram is shown to provide some simple satisfactory tests of both hypotheses, but tests for separability given axial symmetry have low power for small lattices

Industrial structure and evasion dynamics, is there any link?

We propose a model to describe the link between industrial structure and evasion dynamics in a heterogeneous setting, in which the monitoring efforts put in place by the State to fight evasion of firms depend on the market share of each firm. More precisely, while the convenience to evade taxes is determined as a Nash solution of an incomplete information game, a differentiated monitoring activity related to market concentration represents the original contribution of this work w.r.t. previous studies on the topic. As empirical evidence shows, high dimensional firms are more likely to be monitored, hence, when dynamics are considered, evasion and industrial structure evolution are strictly related. In fact, by combining analytical findings and simulation results, our work shows that: (1) firms with a sufficiently large market share, that is, larger than a certain dimensional threshold, comply with fiscal rules, thus confirming empirical evidence; (2) this dimensional threshold changes with the competition level between firms in a nonlinear way; (3) evasion affects the market structure, so that markets with high (low) competition tend to increase (decrease) their concentration over time; (4) evasion is affected by market structure and is minimum in moderately concentrated markets

Cambiamento strutturale e crescita

Il problema del cambiamento strutturale sorge in un contesto nel quale un settore cresce ad un saggio differente rispetto gli altri settori. L'origine pu\uf2 essere dovuta o alle caratteristiche della tecnologia o a preferenze non-omotetiche (o a entrambe le cause). Similmente, noi possiamo avere che una regione all\u2019interno di una nazione, un\u2019economia nazionale all\u2019interno dell\u2019economia mondiale, un\u2019istituzione politica all\u2019interno di un sistema politico cresce ad un saggio differente rispetto le altre regioni, le altre economie nazionali, le altre istituzioni politiche. In altri termini, possiamo avere non solo un cambiamento strutturale di tipo tecnologico, ma anche un cambiamento strutturale di tipo spaziale o istituzionale e cos\uec via. Pertanto, un problema preliminare concerne l\u2019esistenza delle strategie ottimali in un contesto in cui settori diversi, regioni, economie nazionali ed istituzioni politiche possono crescere a saggi differenti