Index

adjusted R2

adjustment parametersarbitrageAsian optionsautocorrelation

coefcientsin cross-sectional datafunction (acf)in volatility

autocovariancesautoregressive (AR) modelautoregressive conditional duration (ACD)autoregressive conditional heteroscedasticity

(ARCH) modelsautoregressive distributed lag (ADL) modelsautoregressive integrated moving average

(ARIMA) modelsautoregressive moving average (ARMA) modelsautoregressive volatility (ARV) models

backshift operator see lag operatorbalanced panelbanking competitionBayes theoremBDS testBEKK modelBeraJarque testbest linear unbiased estimators (BLUE)between estimatorBHHH algorithmbiased estimatorbicorrelation testbidask spreadbispectrum testbivariate regressionblock signicance testsbootstrappingBoxJenkins approachBoxPierce Q-statisticBreuschGodfrey testbroken trendbuy-and-hold abnormal return (BHAR)

calendar effectscapital asset pricing model (CAPM)capital market lineCarhart modelcausality testscensored dependent variablecentral limit theoremcentral tendencychaos theorycharacteristic equationchi-squared distributionChow testclassical linear regression model (CLRM)CLRM assumptions

violations ofCochraneOrcutt procedurecoefcient estimators

standard errors ofcointegrating regressions

DurbinWatson (CRDW) statisticcointegrating vectorcointegration

testscommodity pricescommon factor restrictionsconditional covarianceconditional expectationsconditional kurtosisconditional skewnessconditional varianceconditional variance-in-meanconrmatory data analysisconsistencyconstant termcontemporaneous termscontinuously compounded returnsconvergence criterioncopulascorrelation

impliedmatrixpositive denite matrix

Index

711

correlation coefcientcorrelogram see autocorrelation functioncost of carry (coc) modelcovariance stationary process see weakly stationary

processcovered interest parity (CIP)credit ratingcritical valuescross-equation restrictionscross-sectional regressioncross-sectional variabilitycumulative abnormal return (CAR)cumulative normal distributionCUSUM and CUSUMSQ tests

daily range estimatorsdaily volatility estimatedamped sine wavedata

cross-sectionalmacroeconomicpanelqualitative/quantitativetime seriestransformed

data frequenciesdata generating process (DGP)data miningdata revisionsdata snooping see data miningday-of-the-week effectdegree of uncertaintydegrees of freedomdegrees of persistencedependent/independent variable

inertia ofdeterministic trendDickeyFuller (DF) test

augmented (ADF)critical values

differencingdifferentiationdiscrete choice see multiple choicedistributed lag modelsdisturbance termdouble logarithmic formdummy variables

dummy variable trapDurbinWatson testdynamic conditional correlation (DCC) modeldynamic models

econometric modelconstruction

evaluationefcient estimatorefcient frontierefcient market hypothesiseigenvalueseigenvectorselasticitiesempirical research project

choice of softwarechoice of topicdata forforms oforiginalityoutlinepurposeresultsstructure

encompassing principleencompassing regressionsEngleGranger testEngleNg testequilibrium correction model see error correction

modelerror correction modelerror term

variance oferrors-in-variables see measurement errorestimation techniques

full information maximum likelihood (FIML)indirect least squares (ILS)instrumental variable (IV)two-stage least squares (SLS)

estimatorsevent study

biased/unbiasedstandard error

EViewsARCH effectsARCH estimationARMA modelsautocorrelation functionBDS testBeraJarque testBreuschGodfrey testCAPM regressionChow testcointegrationdate formatdummy variablesdummy variables for seasonalityDurbinWatson statisticEGARCH modelexponential smoothingforecasting

712

Index

forecasting from GARCHGJR modelGARCH estimationGARCH-M estimationGranger causality testshedge ratio estimationheteroscedasticity testinginformation criteriaJohansen testLjungBox testMGARCH estimationmulticollinearityNeweyWest procedureRESET testreturns on sharessimultaneous equations modelstransformation of seriesunit root testVAR estimationVaR estimation using bootstrappingvariance decompositionWald testWhites test

exchange rateexogeneityexpectations hypothesisexplained sum of squares (ESS)exponentexponential growth modelexponential regression modelexponential smoothingexponential weightingexponentially weighted moving average (EWMA)

modelsextreme value theory

F -testfactor loadingsFamaFrench approachFamaMacBeth procedurenancial datanancial modelling

returns innancial optionstted valuexed effectsforcing variableforecast accuracyforecast encompassingforecast errorforecasting

autoregressive processARMA modelsin-sample/out-of-sample

moving average processone-step-ahead/multi-step-aheadstructuraltime series

forward rate unbiasedness (FRU)fractionally integrated modelsfunctional form misspecication of see RESET

test

GJR modelgeneralised autoregressive conditional

heteroscedasticity (GARCH) modelsexponential (EGARCH)factorintegrated (IGARCH)in-mean (GARCH-M)orthogonal

geometric meaninverse of a matrixgeneralised error distribution (GED)general-to-specic methodologygeneralised least squares (GLS)generalised unrestricted model (GUM)giltequity yield ratio (GEYR)GoldfeldQuandt test for heteroscedasticitygoodness of tGranger representation theorem

Hadamard productHamiltons lterHausman testHeckman procedurehedge ratioshedonic pricing modelsheteroscedasticity

conditionalhistorical covariancehomoscedasticityhypothesis testing

condence intervalerror classicationLagrange multiplier (LM) testlikelihood ratio (LR) testsignicance leveltest of signicance approachunder maximum likelihoodWald test

identicationorder conditionrank condition

implied covarianceimplied volatility modelsimpulse responses

Index

713

independence of irrelevant alternativesinformation criteria

adjusted R2

Akaikes (AIC)HannanQuinn (HQIC)Schwartzs Bayesian (SBIC)

interceptinterest rates

term structure ofinvertibility

Jensens alphaJohansen testjumps

KPSS testkurtosis

lag lengthslag operatorlagged regressorslagged valueLagrange multiplier (LM) testlags number oflarge sample propertylaws of logslead-lag relationshipsleast squares dummy variables (LSDV)leptokurtosisleverage effectslikelihood functionlikelihood ratio (LR) testLIMDEPlinear modelslinear probability modellinearityLjungBox testlog-likelihood function (LLF)log-return formulationlogit model

comparison with probitestimation ofmeasuring goodness of tparameter interpretation

long-memory modelslong-run static solutionloss function see residual sum of squaresLyapunov exponent

macroeconomic indicatorsmarginal distributionmarginal effectsmarket microstructuremarket reaction

market returnsmarket risk premiummarket timingMarkov switching regimeMarquardt algorithmmatrices

eigenvalues ofmatrix notationmaximum likelihoodmeasurement errormedianminimum capital risk requirement (MCRR) see

value-at-riskmisspecication errormisspecication testsmisspecied dynamicsmodemodel constructionmodel interpretationmoving average processmulticollinearity

nearperfect

multimodalitiesmultinomial logitmultinomial probitmultiple choicemultiple linear regressionmultivariate GARCH models

neural network modelsNeweyWest estimatornews impact curvesNewtonRaphson procedurenon-linear least squares (NLS) procedurenon-linear modelsnon-linear restrictionsnominal seriesnon-negativitynon-nested modelsnon-normalitynon-stationarity

deterministicrandom walk with driftstochastictesting fortrend-stationary processunit root

observation frequenciesobservations

daily closingnumber of

optimal portfolio

714

Index

options priceorder of integrationordered response variable

ordered logitordered probit

ordinal scaleordinary least squares (OLS)

coefcient estimatorinterceptmultiple regressionslopestandard error estimatortime series regression

out-of-sampleoutliersoverttingoverreaction effectoversized tests

p-value see hypothesis testing: signicance levelpanel data analysispanel cointegrationpanel unit root testparameters

estimationsstability tests

parsimonious encompassingparsimonious modelpartial autocorrelation function (pacf)partial regression coefcientpecking order hypothesispenalty termperiod effects see time xed effectspiecewise linear modelPhillipsPerron testspooled samplepopulation

coefcientdisturbances

population regression function (PRF)population valuesportfolio theoryportmanteau testsposition risk requirement see value-at-riskpowersprediction see forecastingpredictive failure testprecisionprice deatorprincipal components analysis (PCA)probabilitiesprobability density function (pdf)probability distributionprobit model

comparison with logitestimation ofmeasuring goodness of tparameter interpretation

property returnspseudo R2

pseudo-random numberspurchasing power parity (PPP)

qualitative variables see dummy variablesQuandt likelihood ratio testquantilequantile regressionquasi-demeaned data see random effectsquasi-maximum likelihood (QML)

R2

R-bar2

random drawsrandom effectsrandom number generationrandom number re-usagerandom walkrank (of a matrix)ratings

announcementsrational expectationsreal seriesreality check testrecursive forecasting modelrecursive least squaresredundant xed effects testregime switchingregression analysisrejection regionrelationship between variablesrenormalisationre-sampling

from datafrom residuals

RESET testresidual diagnosticsresidual sum of squares (RSS)residual termrestricted/unrestricted modelrestricted/unrestricted regressionsrestrictions number ofrisk managementrisk measurementrisk premiumriskreturn relationshipriskless arbitrage opportunitiesrolling window

Index

715

samplesample regression function (SRF)sample selection biassample sizesampling errorscatter plotseasonal unit rootseasonalitysecond moment modelsseemingly unrelated regression (SUR)self-selection bias see sample selection biassemi-interquartile rangesensitive dependence on initial conditions (SDIC)Sharpe ratioshocksshort-sellingshufe diagnosticsigma notationsignicance levelsign predictionssign and size bias testssimple bivariate regression modelsimple returnssimulation experiments

disadvantagessimulation methods

Monte Carlosimultaneous equationssize of test see signicance levelskewnessslippage timeslopesmall sample problemssovereign credit ratingssovereign yield spreadsspatial lagspecic-to-general modellingspline techniquesspot/futures marketsspot return forecastsspurious regressionssquared daily returnssquared residualsstable distributionsstandard deviationsstandard errorsstationarity

differencestochastictesting forweak

statistical decision rulestatistical inferencestochastic regressors

stochastic trend modelstochastic volatility (SV) modelstock index

futures marketslog of

stock returnpredictability

strictly stationary processstructural breakstructural changestructural equationsstructural modelsStudents t distributionswitching modelsswitching portfolio

t-testt-ratioTheils U-statisticthreshold autoregressive (TAR) models

self-exciting (SETAR)smooth transition (STAR)

tick sizelimits

time xed effectstime series models

univariatetime series regressionstime-varying covariancestime-varying stock market risk premiumstobit regressiontotal sum of squares (TSS)trading rulestrading strategiestransaction coststransition probabilitiestruncated dependent variable

unbalanced panelunbiasednessunconditional density modeluncovered interest parity (UIP)uniform distributionunit root processunit roots testing forunparameterised seasonality

value-at-risk (VaR)Monte Carlo approach

variablesbinary choicedummyexogenousexplanatory

716

Index

irrelevantmacroeconomicomission ofordering ofrandomslope dummystate-determining

variancecovariance matrixconditional

variance decompositionsvariance forecastsvariance operatorvariance reduction techniques

antithetic variatecontrol variatesquasi-random sequences

VECH modeldiagonal

vector autoregressive (VAR) modelsvector autoregressive moving average (VARMA)

modelsvector error correction model (VECM)

vector moving average (VMA) modelvolatility

asymmetries inclusteringfeedback hypothesisforecastinghistoricalimpliedresponse to shocks

Wald testweakly stationary processweighted least squares (WLS)white noise process

error termWhites correctionWhites testwithin transformationWolds decomposition theorem

yield curvesYuleWalker equations