A Simple Model of the Nominal Term Structure of Interest Rates

This paper presents a simple two-factor model of nominal term structure of interest rates, in which the log-price kernel has an autoregressive drift process and a nonlinear GARCH volatility process. With these two state-variable processes, closed-form solutions are derived for zero-coupon bond prices as well as yield to maturity for a given time to maturity.

An Empirical Characteristic Function Approach to VaR under a Mixture of Normal Distribution with Time-Varying Volatility

This paper considers Value at Risk measures constructed under a discrete mixture of normal distribution on the innovations with time-varying volatility, or MN-GARCH, model. We adopt an approach based on the continuous empirical characteristic function to estimate the param eters of the model using several daily foreign exchange rates' return data. This approach has several advantages as a method for estimating the MN-GARCH model. In particular, under certain weighting measures, a closed form objective distance function for estimation is obtained. This reduces the computational burden considerably. In addition, the characteristic function, unlike its likelihood function counterpart, is always uniformly bounded over parameter space due to the Fourier transformation. To evaluate the VaR estimates obtained from alternative specifications, we construct several measures, such as the number of violations, the average size of violations, the sum square of violations and the expected size of violations. Based on these measures, we find that the VaR measures obtained from the MN-GARCH model outperform those obtained from other competing models.Value at Risk; Mixture of Normals; GARCH; Characteristic Function.

The Proportion of Females in the Establishment: Discrimination, Preferences and Technology

This paper examines determinants of the proportion of females in the establishment as this variable can affect the male- female wage gap in an important way. Our search for the determinants is guided by two views of the labour market, namely discrimination and coincidence of needs between firms and workers. Results suggest that establishments have higher proportion of females when employment is higher during the school year and employment turnover is higher; the more stable the demand for the output; the higher the proportion of white collar employees; and the smaller the local labour market. This suggests that public policy based on one view of how the labour market works may produce unintended results that will not necessarily improve the welfare of the very groups targeted.Gender Wage Gap, Wage Decomposition Techniques, and Determinants Proportion of Females in the Establishment

Asymmetric Stochastic Conditional Duration Model --A Mixture of Normals Approach"

This paper extends the stochastic conditional duration model by imposing mixtures of bivariate normal distributions on the innovations of the observation and latent equations of the duration process. This extension allows the model not only to capture the asymmetric behavior of the expected duration but also to easily accommodate a richer dependence structure between the two innovations. In addition, it proposes a novel estimation methodology based on the empirical characteristic function. A set of Monte Carlo experiments as well as empirical applications based on the IBM and Boeing transaction data are provided to assess and illustrate the performance of the proposed model and the estimation method. One main empirical finding in this paper is that there is a signicantly positive "leverage effect" under both the contemporaneous and lagged inter-temporal de pendence structures for the IBM and Boeing duration data.Stochastic Conditional Duration model; Leverage Effect; Discrete Mixtures of Normal; Empirical Characteristic Function

Time-Deformation Modeling Of Stock Returns Directed By Duration Processes

This paper presents a new class of time-deformation (or stochastic volatility) models for stock returns sampled in transaction time and directed by a generalized duration process. Stochastic volatility in this model is driven by an observed duration process and a latent autoregressive process. Parameter estimation in the model is carried out by using the method of simulated moments (MSM) due to its analytical feasibility and numerical stability for the proposed model. Simulations are conducted to validate the choices of the moments used in the formulation of the MSM. Both the simulation and empirical results obtained in this paper indicate that this approach works well for the proposed model. The main empirical findings for the IBM transaction return data can be summarized as follows: (i) the return distribution conditional on the duration process is not Gaussian, even though the duration process itself can marginally function as a directing process; (ii) the return process is highly leveraged; (iii) a longer trade duration tends to be associated with a higher return volatility; and (iv) the proposed model is capable of reproducing return whose marginal density function is close to that of the empirical return.Duration process; Ergodicity; Method of simulated moments; Return process; Stationarity.

Testing the Permanent Income Hypothesis: The Evidence from Canadian Data.

This paper investigates whether there are variants of the permanent income model that are consistent with seasonally unadjusted quarterly postwar Canadian data. The analysis is based on a misspecification-test equation which nests the standard permanent income model. The results obtained are somewhat unfavorable to the permanent-income hypothesis. The same results also apply to more general models in which the real interest rate is time-varying and the utility function is nonseparable in consumption and the stock of durable goods.