Econometric Institute Research Papers
http://repub.eur.nl/col/445/
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RePub, Erasmus University RepositoryAxiomatic Characterization of the Median and
Antimedian Function on a Complete Graph minus a
Matching
http://repub.eur.nl/pub/78348/
Thu, 18 Jun 2015 00:00:01 GMT<div>M. Changat</div><div>D.S. Lekha</div><div>S. Mohandas</div><div>H.M. Mulder</div><div>A.R. Subhamathi</div>
__Abstract__
A median (antimedian) of a profile of vertices on a graph G is a vertex that minimizes (maximizes) the sum of the distances to the elements in the profile. The median (antimedian) function has as output the set of medians (antimedians) of a profile. It is one of the basic models for the location of a desirable (obnoxious) facility in a network. The median function is well studied. For instance it has been characterized axiomatically by three simple axioms on median graphs. The median function behaves nicely on many classes of graphs. In contrast the antimedian function does not have a nice behavior on most classes. So a nice axiomatic characterization may not be expected. In this paper an axiomatic characterization is obtained for the median and antimedian function on complete graphs minus a matching.An ABC-Problem for Location and Consensus
Functions on Graphs
http://repub.eur.nl/pub/78320/
Mon, 08 Jun 2015 00:00:01 GMT<div>F.R. McMorris</div><div>B. Novick</div><div>H.M. Mulder</div><div>R.C. Powers</div>
__Abstract__
A location problem can often be phrased as a consensus problem or a voting problem. We use these three perspectives, namely location, consensus and voting to initiate the study of several questions. The median function Med is a location/consensus function on a connected graph G that has the finite sequences of vertices of G as input. For each such sequence, Med returns the set of vertices that minimize the distance sum to the elements of the sequence. The median function satisfies three intuitively clear axioms: (A) Anonymity, (B) Betweenness and (C) Consistency. In [13] it was shown that on median graphs these three axioms actually characterize Med. This result raises a number of questions: (i) On what other classes of graphs is Med characterized by (A), (B) and (C)? (ii) If some class of graphs has other ABC-functions besides Med, then determine additional axioms that are needed to characterize Med. (iii) In the latter case, can we find characterizations of other functions that satisfy (A), (B) and (C)? We call these questions, and related questions, the ABC-Problem for location/consensus functions on graphs. In this paper we present first results. For the first question we use consensus terminology. We construct a non-trivial class different from the median graphs, on which the median function is the unique “ABC function”. For the second and third question voting terminology is most apt for our approach. On K_n with n > 2 we construct various non-trivial ABC-voting procedures. For some nice families, we present a full axiomatic characterization. We also construct an infinite family of ABC-functions on K_3.Volatility Spillovers Between Energy and Agricultural Markets:
A Critical Appraisal of Theory and Practice
http://repub.eur.nl/pub/78349/
Mon, 01 Jun 2015 00:00:01 GMT<div>C-L. Chang</div><div>Y. Li</div><div>M.J. McAleer</div>
__Abstract__
Energy and agricultural commodities and markets have been examined extensively, albeit separately, for a number of years. In the energy literature, the returns, volatility and volatility spillovers (namely, the delayed effect of a returns shock in one asset on the subsequent volatility or covolatility in another asset), among alternative energy commodities, such as oil, gasoline and ethanol across different markets, have been analysed using a variety of univariate and multivariate models, estimation techniques, data sets, and time frequencies. A similar comment applies to the separate theoretical and empirical analysis of a wide range of agricultural commodities and markets. Given the recent interest and emphasis in bio-fuels and green energy, especially bio-ethanol, which is derived from a range of agricultural products, it is not surprising that there is a topical and developing literature on the spillovers between energy and agricultural markets. Modelling and testing spillovers between the energy and agricultural markets has typically been based on estimating multivariate conditional volatility models, specifically the BEKK and DCC models. A serious technical deficiency is that the Quasi-Maximum Likelihood Estimates (QMLE) of a full BEKK matrix, which is typically estimated in examining volatility spillover effects, has no asymptotic properties, except by assumption, so that no statistical test of volatility spillovers is possible. Some papers in the literature have used the DCC model to test for volatility spillovers. However, it is well known in the financial econometrics literature that the DCC model has no regularity conditions, and that the QMLE of the parameters of DCC has no asymptotic properties, so that there is no valid statistical testing of volatility spillovers. The purpose of the paper is to evaluate the theory and practice in testing for volatility spillovers between energy and agricultural markets using the multivariate BEKK and DCC models, and to make recommendations as to how such spillovers might be tested using valid statistical techniques. Three new definitions of volatility and covolatility spillovers are given, and the different models used in empirical applications are evaluated in terms of the new definitions and statistical criteria.Symbolic Multidimensional Scaling
http://repub.eur.nl/pub/78189/
Wed, 27 May 2015 00:00:01 GMT<div>P.J.F. Groenen</div><div>Y. Terada</div>
__Abstract__
Multidimensional scaling (MDS) is a technique that visualizes dissimilarities between pairs of objects as distances between points in a low dimensional space. In symbolic MDS, a dissimilarity is not just a value but can represent an interval or even a histogram. Here, we present an overview of developments for symbolic MDS. We discuss how interval dissimilarities they can be represented by (concentric) circles or rectangles, how replications can be represented by a three-way MDS version, and show how nested intervals of distances can be obtained for representing histogram dissimilarities. The various models are illustrated by empirical examples.How to gain brain for Suriname
http://repub.eur.nl/pub/78151/
Thu, 21 May 2015 00:00:01 GMT<div>T. Dulam</div><div>Ph.H.B.F. Franses</div>
__Abstract__
This paper investigates whether high skilled migrants of Surinamese origin would be willing to return to the home country if they were offered a remigration benefits package. We surveyed 209 highly educated individuals of Surinamese origin who live in the Netherlands. A quarter of them is willing to return to Suriname if they were offered a house, land property, and easy access to credit. Eliminating political interference in profession would even attract the majority. The willingness to accept the offer diminishes over time. The offer mostly attracts engineers to return to Suriname. Offering funds for research and innovation attracts health professionals as well. We also explore some other proposals and discuss the policy implications.International Technology Diffusion of Joint
and Cross-border Patents
http://repub.eur.nl/pub/78143/
Fri, 15 May 2015 00:00:01 GMT<div>C-L. Chang</div><div>M.J. McAleer</div><div>J-T. Tang</div>
__Abstract__
With the advent of globalization, economic and financial interactions among countries
have become widespread. Given technological advancements, the factors of production
can no longer be considered to be just labor and capital. In the pursuit of economic
growth, every country has sensibly invested in international cooperation, learning,
innovation, technology diffusion and knowledge. In this paper, we use a panel data set
of 40 countries from 1981 to 2008 and a negative binomial model, using a novel set of
cross-border patents and joint patents as proxy variables for technology diffusion, in
order to investigate such diffusion. The empirical results suggest that, if it is desired to
shift from foreign to domestic technology, it is necessary to increase expenditure on
R&D for business enterprises and higher education, exports and technology. If the
focus is on increasing bilateral technology diffusion, it is necessary to increase
expenditure on R&D for higher education and technology.Risk attitudes in the board room and company performance:
Evidence for an emerging economy
http://repub.eur.nl/pub/78127/
Fri, 01 May 2015 00:00:01 GMT<div>D. Bodeutsch</div><div>Ph.H.B.F. Franses</div>
__Abstract__
We personally interview thirteen board members of seven (out of the ten) companies listed at the
Suriname Stock Exchange and ask questions about their past and current decisions and on their
risk attitudes. Next, we correlate the answers to company performance in between 2003-2011, like
earnings per share, stock returns, book value and market value. Recent literature on risk attitudes
in the board, which usually draws on western economies, guides our formulation of hypotheses.
At the same time we also perform some exploratory analyses. Our main result is that, for this
emerging economy, more risk adversity leads to better firm performance.A Stochastic Dominance Approach to the Basel III Dilemma: Expected Shortfall or VaR?
http://repub.eur.nl/pub/78155/
Fri, 01 May 2015 00:00:01 GMT<div>C-L. Chang</div><div>J.A. Jiménez-Martín</div><div>M.J. McAleer</div><div>T. Pérez-Amaral</div>
__Abstract__
The Basel Committee on Banking Supervision (BCBS) (2013) recently proposed shifting the quantitative risk metrics system from Value-at-Risk (VaR) to Expected Shortfall (ES). The BCBS (2013) noted that “a number of weaknesses have been identified with using VaR for determining regulatory capital requirements, including its inability to capture tail risk” (p. 3). For this reason, the Basel Committee is considering the use of ES, which is a coherent risk measure and has already become common in the insurance industry, though not yet in the banking industry. While ES is mathematically superior to VaR in that it does not show “tail risk” and is a coherent risk measure in being subadditive, its practical implementation and large calculation requirements may pose operational challenges to financial firms. Moreover, previous empirical findings based only on means and standard deviations suggested that VaR and ES were very similar in most practical cases, while ES could be less precise because of its larger variance. In this paper we find that ES is computationally feasible using personal computers and, contrary to previous research, it is shown that there is a stochastic difference between the 97.5% ES and 99% VaR. In the Gaussian case, they are similar but not equal, while in other cases they can differ substantially: in fat-tailed conditional distributions, on the one hand, 97.5%-ES would imply higher risk forecasts, while on the other, it provides a smaller down-side risk than using the 99%-VaR. It is found that the empirical results in the paper generally support the proposals of the Basel Committee.Least-squares Bilinear Clustering of Three-way Data
http://repub.eur.nl/pub/77757/
Mon, 16 Feb 2015 00:00:01 GMT<div>P.C. Schoonees</div><div>P.J.F. Groenen</div><div>M. van de Velden</div>
__Abstract__
A least-squares bilinear clustering framework for modelling three-way data, where each observation consists of an ordinary two-way matrix, is introduced. The method combines bilinear decompositions of the two-way matrices into overall means, row margins, column margins and row-column interactions with clustering along the third way. Different clusterings are defined for each part of the decomposition, so that up to four different classifications are defined jointly. The computational burden is greatly reduced by the orthogonality of the bilinear model, such that the joint clustering problem reduces to separate ones which can be handled independently. Three of these sub-problems are specific cases of $k$-means clustering; a special algorithm is formulated for the row-column interactions, which are displayed in clusterwise biplots. The method is illustrated via two empirical examples and interpreting the interaction biplots are discussed.The Impact of Jumps and Leverage in Forecasting Co-Volatility
http://repub.eur.nl/pub/78068/
Sun, 01 Feb 2015 00:00:01 GMT<div>M. Asai</div><div>M.J. McAleer</div>
__Abstract__
The paper investigates the impact of jumps in forecasting co-volatility, accommodating leverage
effects. We modify the jump-robust two time scale covariance estimator of Boudt and Zhang (2013)
such that the estimated matrix is positive definite. Using this approach we can disentangle the
estimates of the integrated co-volatility matrix and jump variations from the quadratic covariation
matrix. Empirical results for three stocks traded on the New York Stock Exchange indicate that
the co-jumps of two assets have a significant impact on future co-volatility, but that the impact
is negligible for forecasting weekly and monthly horizons.Frontiers in Time Series and Financial Econometrics
http://repub.eur.nl/pub/78069/
Sun, 01 Feb 2015 00:00:01 GMT<div>S. Ling</div><div>M.J. McAleer</div><div>H. Tong</div>
__Abstract__
Two of the fastest growing frontiers in econometrics and quantitative finance are time series and financial econometrics. Significant theoretical contributions to financial econometrics have been made by experts in statistics, econometrics, mathematics, and time series analysis. The purpose of this special issue of the journal on “Frontiers in Time Series and Financial Econometrics” is to highlight several areas of research by leading academics in which novel methods have contributed significantly to time series and financial econometrics, including forecasting co-volatilities via factor models with asymmetry and long memory in realized covariance, prediction of Lévy-driven CARMA processes, functional index coefficient models with variable selection, LASSO estimation of threshold autoregressive models, high dimensional stochastic regression with latent factors, endogeneity and nonlinearity, sign-based portmanteau test for ARCH-type models with heavy-tailed innovations, toward optimal model averaging in regression models with time series errors, high dimensional dynamic stochastic copula models, a misspecification test for multiplicative error models of non-negative time series processes, sample quantile analysis for long-memory stochastic volatility models, testing for independence between functional time series, statistical inference for panel dynamic simultaneous equations models, specification tests of calibrated option pricing models, asymptotic inference in multiple-threshold double autoregressive models, a new hyperbolic GARCH model, intraday value-at-risk: an asymmetric autoregressive conditional duration approach, refinements in maximum likelihood inference on spatial autocorrelation in panel data, statistical inference of conditional quantiles in nonlinear time series models, quasi-likelihood estimation of a threshold diffusion process, threshold models in time series analysis - some reflections, and generalized ARMA models with martingale difference errors.On the Invertibility of EGARCH(p,q)
http://repub.eur.nl/pub/78126/
Sun, 01 Feb 2015 00:00:01 GMT<div>G.G. Martinet</div><div>M.J. McAleer</div>
__Abstract__
Of the two most widely estimated univariate asymmetric conditional volatility models,
the exponential GARCH (or EGARCH) specification can capture asymmetry, which
refers to the different effects on conditional volatility of positive and negative effects of
equal magnitude, and leverage, which refers to the negative correlation between the
returns shocks and subsequent shocks to volatility. However, the statistical properties of
the (quasi-) maximum likelihood estimator (QMLE) of the EGARCH parameters are not
available under general conditions, but only for special cases under highly restrictive and
unverifiable conditions, such as EGARCH(1,0) or EGARCH(1,1), and possibly only
under simulation. A limitation in the development of asymptotic properties of the QMLE
for the EGARCH(p,q) model is the lack of an invertibility condition for the returns
shocks underlying the model. It is shown in this paper that the EGARCH(p,q) model can
be derived from a stochastic process, for which the invertibility conditions can be stated
simply and explicitly. This will be useful in re-interpreting the existing properties of the
QMLE of the EGARCH(p,q) parameters.Return migration of high skilled workers
http://repub.eur.nl/pub/78065/
Mon, 19 Jan 2015 00:00:01 GMT<div>Ph.H.B.F. Franses</div>
__Abstract__
In this paper we study the determinants of skilled return migration from the Netherlands to Suriname. Based on a survey of Gibson and McKenzie (2011) we managed to interview 283 former top students from Suriname. This unique database is informative in various dimensions. High skilled workers whose education was funded by a scholarship or by the parents are more likely to return. They tend to choose for the country where their parents, lifepartner and children live. Workers that perform management tasks and/or are in touch with clients exhibit higher chances to live in the home country. One might think of consultants or business managers. Furthermore we find that preferences towards the Netherlands regarding salaries, job contentment, and safety, lower the likelihood of opting for Suriname in the future. Facilitating high skilled workers in Suriname helps to increase return migration, and policies aimed at facilitating family members can also be beneficial. Scholarships and supply of tertiary education in Suriname remain important.The Davies Problem: A New Test for Random Slope in the Hierarchical Linear Model
http://repub.eur.nl/pub/78063/
Mon, 05 Jan 2015 00:00:01 GMT<div>R.D. van Oest</div><div>Ph.H.B.F. Franses</div>
__Abstract__
Crucial inference for the hierarchical linear model concerns the null hypothesis of no random slope. We argue that the usually applied statistical test suffers from the so-called Davies problem, that is, a nuisance parameter is only identified under the alternative. We propose an easy-to-implement methodology that exploits this property. We provide the relevant critical values and demonstrate through simulations that our new methodology has better power properties.Risk attitudes in company boardrooms in a developing country
http://repub.eur.nl/pub/78066/
Thu, 01 Jan 2015 00:00:01 GMT<div>D. Bodeutsch</div><div>Ph.H.B.F. Franses</div>
__Abstract__
We test risk attitude and risk propensity of executive and non-executive directors of almost all (read: 10) companies listed at the Suriname Stock Exchange. This stock exchange associates with an emerging market, which currently seems to be at its initial stage. With a personalized survey we collect data for 13 members in the board room. The sample size is small as the population is small, but still we can test various hypotheses that are put forward in the literature. Our main finding is that the differences between risk attitudes of board members of companies in a developing country do not differ tremendously from those of board members in developed countries.Quality Weighted Citations Versus Total Citations in the Sciences and Social Sciences, with an Application to Finance and Accounting
http://repub.eur.nl/pub/78067/
Thu, 01 Jan 2015 00:00:01 GMT<div>C-L. Chang</div><div>M.J. McAleer</div>
__Abstract__
The premise underlying the use of citations data is that higher quality journals generally have a higher number of citations. The impact of citations can be distorted in a number of ways. Journals can, and do, inflate the number of citations through self citation practices, which may be coercive. Another method for distorting journal impact is through a set of journals agreeing to cite each other, that is, by exchanging citations. This may be less coercive than self citations, but is nonetheless unprofessional and distortionary. Both journal self citations and exchanged citations have the effect of increasing a journal’s impact factor, which may be deceptive. The paper analyses academic journal quality and research impact using quality weighted citations versus total citations, based on the widely-used Thomson Reuters ISI Web of Science citations database (ISI). A new Index of Citations Quality (ICQ) is presented, based on quality weighted citations. The new index is used to analyse the leading 500 journals in both the Sciences and Social Sciences, as well as 58 leading journals in Finance and Accounting, using quantifiable Research Assessment Measures (RAMs) that are based on alternative transformations of citations. It is shown that ICQ is a useful additional measure to 2YIF and other well known RAMs for the purpose of evaluating the impact and quality, as well as ranking, of journals as it contains information that has very low correlations with the information contained in the well known RAMs for both the Sciences and Social Sciences, as well as in Finance and Accounting.GenSVM: A Generalized Multiclass Support Vector Machine
http://repub.eur.nl/pub/77638/
Thu, 18 Dec 2014 00:00:01 GMT<div>G.J.J. van den Burg</div><div>P.J.F. Groenen</div>
__Abstract__
Traditional extensions of the binary support vector machine (SVM) to multiclass problems are either heuristics or require solving a large dual optimization problem. Here, a generalized multiclass SVM called GenSVM is proposed, which can be used for classification problems where the number of classes K is larger than or equal to 2. In the proposed method, classification boundaries are constructed in a K - 1 dimensional space. The method is based on a convex loss function, which is flexible due to several different weightings. An iterative majorization algorithm is derived that solves the optimization problem without the need of a dual formulation. The method is compared to seven other multiclass SVM approaches on a large number of datasets. These comparisons show that the proposed method is competitive with existing methods in both predictive accuracy and training time, and that it significantly outperforms several existing methods on these criteria.Econometric Analysis of Financial Derivatives
http://repub.eur.nl/pub/78064/
Mon, 01 Dec 2014 00:00:01 GMT<div>C-L. Chang</div><div>M.J. McAleer</div>
__Abstract__
One of the fastest growing areas in empirical finance, and also one of the least rigorously analyzed, especially from a financial econometrics perspective, is the econometric analysis of financial derivatives, which are typically complicated and difficult to analyze. The purpose of this special issue of the journal on “Econometric Analysis of Financial Derivatives” is to highlight several areas of research by leading academics in which novel econometric, financial econometric, mathematical finance and empirical finance methods have contributed significantly to the econometric analysis of financial derivatives, including market-based estimation of stochastic volatility models, the fine structure of equity-index option dynamics, leverage and feedback effects in multifactor Wishart stochastic volatility for option pricing, option pricing with non-Gaussian scaling and infinite-state switching volatility, stock return and cash flow predictability: the role of volatility risk, the long and the short of the risk-return trade-off, What’s beneath the surface? option pricing with multifrequency latent states, bootstrap score tests for fractional integration in heteroskedastic ARFIMA models, with an application to price dynamics in commodity spot and futures markets, a stochastic dominance approach to financial risk management strategies, empirical evidence on the importance of aggregation, asymmetry, and jumps for volatility prediction, non-linear dynamic model of the variance risk premium, pricing with finite dimensional dependence, quanto option pricing in the presence of fat tails and asymmetric dependence, smile from the past: a general option pricing framework with multiple volatility and leverage components, COMFORT: A common market factor non-Gaussian returns model, divided governments and futures prices, and model-based pricing for financial derivativesAxiomatic Characterization of the Median and
Antimedian Functions on Cocktail-Party Graphs and
Complete Graphs
http://repub.eur.nl/pub/77639/
Mon, 24 Nov 2014 00:00:01 GMT<div>M. Changat</div><div>D.S. Lekha</div><div>H.M. Mulder</div><div>A.R. Subhamathi</div>
__Abstract__
A median (antimedian) of a profile of vertices on a graph $G$ is a vertex that minimizes (maximizes) the remoteness value, that is, the sum of the distances to the elements in the profile. The median (or antimedian) function has as output the set of medians (antimedians) of a profile. It is one of the basic models for the location of a desirable (or obnoxious) facility in a network.
The median function is well studied. For instance it has been characterized axiomatically by three simple axioms on median graphs. The median function behaves nicely on many classes of graphs. In contrast the antimedian function does not have a nice behavior on most classes. So a nice axiomatic characterization may not be expected. In this paper an axiomatic characterization is obtained for the median and antimedian functions on complete graphs minus a perfect matching (also known as cocktail-party graphs). In addition a characterization of the antimedian function on complete graphs is presented.A method to measure enforcement effort in shipping
with incomplete information
http://repub.eur.nl/pub/77166/
Wed, 12 Nov 2014 00:00:01 GMT<div>X. Ji</div><div>J. Brinkhuis</div><div>S. Knapp</div>
__Abstract__
Current methods in the shipping industry to evaluate performance do not account for differences in fleet profiles of registries such as age, size or ship type and not for bad luck. This can lead to unfair evaluation of enforcement efforts of the international standards. Furthermore, incentives to improve performance are concentrated on decreasing detentions rather than incidents. This article proposes a new method to a longstanding problem to evaluate performance that rectifies shortcomings of the method currently used. The proposed method measures the enforcement effort by means of proxy variables and introduces incentives for improvement that go beyond the currently used ‘detention’. The aim is to provide a fair and transparent way. The proposed method is applied and results are compared with methods currently used to demonstrate how the rankings change. The method can be adapted to other areas of the shipping industry such as classification societies or ship management companies.