Saturday, September 13, 2014

The Econometrics of Temporal Aggregation - IV - Cointegration

My previous post on aggregating time series data over time dealt with some of the consequences for unit roots. The next logical thing to consider is the effect of such aggregation on cointegration, and on testing for its presence.

As in the earlier discussion, we'll consider the situation where the aggregation is over "m" high-frequency periods. A lower case symbol will represent a high-frequency observation on a variable of interest; and an upper-case symbol will denote the aggregated series. So,

           Yt = yt + yt - 1 + ......+ yt - m + 1 .

If we're aggregating quarterly (flow) data to annual data, then m = 4. In the case of aggregation from monthly to quarterly data, m = 3, and so on.

We know, from my earlier post, that if yt is integrated of order one (i.e.,  I(1)), then so is Yt.

Suppose that we also have a second temporally aggregated series:

           Xt = xt + xt - 1 + ......+ xt - m + 1 .

Again, if xt is I(1) then Xt is also I(1). There is the possibility that xt and yt are cointegrated. If they are, is the same true for the aggregated series, Xt and Yt?

Friday, September 12, 2014

Unit Root tests and Seasonally Adjusted Data

We all know why it's common to "seasonally adjust" economic time series data that are recorded on a monthly, quarterly, etc. basis. Students are sometimes surprised to learn that in some countries certain such time series are reported only in seasonally adjusted terms. You can't get the original (unadjusted data). This applies to some U.S. economic data, for example.

Does this matter?

Wednesday, September 3, 2014

Some New Add-Ins for EViews

In my last post (here) I discussed "Add-ins" for the EViews econometrics package. In particular, I concentrated on an Add-in that makes it easy to get from Quandl into an EViews workfile.

The EViews team has just announced the availability of two new Add-ins:
  • BayesLinear: This add-in estimates a linear Gaussian model estimated by Gibbs Sampling.
  • OGARCH: This add-in estimates an Orthogonal GARCH model with 3-step procedure. It is written solely for educational purposes.

As usual, more information about these Add-ins can be found on the EViews website, here, or via the "Add-ins" tab in your installation of EViews:



Check them out!

© 2014, David E. Giles

Tuesday, September 2, 2014

Getting Quandl Data Into EViews

I've sung the praises of Quandl before - e.g., see here. What's not to like about millions of free time series data - especially when they're linked back to their original sources so that updating and accuracy is the least of your worries.

If you can then get your favourite statistics/econometrics package or programming language to access and import these data seamlessly, so much the better. The less you "handle" the data (e.g., by copying and pasting), the less likely you are to introduce unwanted errors. 

One of the great strengths of Quandl is that it facilitates data importing very nicely indeed:

A case in point is with EViews, where it's achieved using an EViews "Add-in". I've recently put together a handout that deals with this for the students in one of the courses I'm teaching this term. There's nothing in it that you couldn't learn from the Quandl and EViews sites. However, it's a "step-by-step guided tour", and I thought that it might be of use more generally. 

You can download it here.

© 2014, David E. Giles

Friday, August 29, 2014

September Reading List

In North America, Labo(u)r Day weekend is upon us. The end of summer. Back to school. Last chance to get some pre-class reading done!

  • Blackburn, M. L., 2014. The relative performance of Poisson and negative binomial regression estimators. Oxford Bulletin of Economics and Statistics, in press.
  • Giannone, D., M. Lenza, and G. E. Primiceri, 2014. Prior selection for vector autoregressions. Review of Economics and Statistics, in press.
  • Gulesserian, S. G. and M. Kejriwal, 2014. On the power of bootstrap tests for stationarity: A Monte Carlo comparison. Empirical Economics, 46, 973-998.
  • Elliot, G. and A. Timmerman, 2008. Economic forecasting. Journal of Economic Literature, 46, 3-56.
  • Kiviet, J. F., 1986, On the rigour of some misspecification tests for modelling dynamic relationships. Review of Economic Studies, 53, 241-261.
  • Otto, G. D. and G. M. Voss, 2014. Flexible inflation forecast targeting: Evidence from Canada. Canadian Journal of Economics, 47, 398-421. 

© 2014, David E. Giles

Tuesday, August 26, 2014

N.Z. Econometrics Study Group, 2015

Thanks to Peter Phillips, the New Zealand Econometric Study Group has been going strong for a quarter of  a century. I last mentioned the group after my participation in the meeting last year - see here

In February of 2015 the NZESG meeting will be going off-shore for the first time, and will be held at the Queensland University of Technology (Australia). In particular, it will be held in collaboration with the National Centre for Econometric Research, about which I've posted previously.

The full details of the upcoming Meeting can be found here. Definitely something to be looking forward to!


© 2014, David E. Giles

Monday, August 25, 2014

On Rockets and Feathers

"Rockets and Feathers" is a term that is often used to describe the (apparent) asymmetric responses of downstream price changes to changes in upstream prices. I believe that the expression was coined by Bacon (1991), and it's been used frequently in the literature in connection with the prices of gasoline and crude oil.

When the price of crude oil falls, does the price of gasoline fall as quickly as it rises when the crude oil price rises? Many studies suggest that the answer is "No". The price goes goes up like a rocket, but it falls like a feather.

There are several explanations for this apparent phenomenon, and a really good analysis of these competing hypotheses is provided by Douglas and Herrera (2010), for example.

This phenomenon was mentioned in my recent post about the paper that I presented at the Joint Statistical Meetings a few weeks ago. Since then, I've received a nice email from Andrea Bastianin, a post-doctoral fellow at the University of Milan. Andrea sent me a paper that he and his co-authors have completed, and that's to appear in Energy Economics.

While dealing with the "Rockets and Feathers" hypothesis in relation to oil and gasoline prices, their paper has an important and novel twist to it- they focus on forecasting performance of models that incorporate asymmetry. Here's the abstract:

Friday, August 22, 2014

The Econometrics of Temporal Aggregation - III - Unit Roots

In two previous posts, I've talked a bit about the effect that aggregating time series data can have on some standard econometric results. The first of those posts was about a talk that I gave last month at the 2014 Conference of the New Zealand Association of Economists. That talk was on the general topic of "The Econometrics of Temporal Aggregation". The second post looked more specifically of the consequences of such aggregation on the results of testing for Granger causality.

Here, I'll provide some information about the impact of temporal aggregation on the existence of, and testing for, unit roots in time-series data.

Thursday, August 21, 2014

Risk Analysis for Three Precious Metals

Qinlu (Louisa) Chen and I have recently completed a paper titled, "Risk Analysis for Three Precious Metals: An Application of Extreme Value Theory". It's based in part on work that Louisa undertook in her B.Sc. Honours program here at UVic.

Here's the abstract:
"Gold, and other precious metals, are among the oldest and most widely held commodities used as a hedge against the risk of disruptions in financial markets. The prices of such metals fluctuate substantially, introducing a risk of its own. This paper’s goal is to analyze the risk of investment in gold, silver, and platinum by applying Extreme Value Theory to historical daily data for changes in their prices. The risk measures adopted in this paper are Value at Risk and Expected Shortfall. Estimates of these measures are obtained by fitting the Generalized Pareto Distribution, using the Peaks‐Over‐Threshold method, to the extreme daily price changes. The robustness of the results to changes in the sample period is discussed. Our results show that silver is the most risky metal among the three considered. For negative daily returns, platinum is riskier than gold; while the converse is true for positive returns."
If you're interested, you can download the full paper here.

© 2014, David E. Giles

Tuesday, August 19, 2014

The Bracken Bower Prize

The Bracken Bower Prize is a new initiative that's intended to motivate younger authors to identify and analyse future business trends. It's an important award that could well be of interest to applied econometricians, so here are the details that were sent to me:



Introducing the Bracken Bower Prize

The Financial Times and McKinsey & Company, organisers of the Business Book of the Year Award, want to encourage young authors to tackle emerging business themes. They hope to unearth new talent and encourage writers to research ideas that could fill future business books of the year. A prize of £15,000 will be given for the best book proposal.

The Bracken Bower Prize is named after Brendan Bracken who was chairman of the FT from 1945 to 1958 and Marvin Bower, managing director of McKinsey from 1950 to 1967, who were instrumental in laying the foundations for the present day success of the two institutions. This prize honours their legacy but also opens a new chapter by encouraging young writers and researchers to identify and analyse the business trends of the future.

The inaugural prize will be awarded to the best proposal for a book about the challenges and opportunities of growth. The main theme of the proposed work should be forward-looking. In the spirit of the Business Book of the Year, the proposed book should aim to provide a compelling and enjoyable insight into future trends in business, economics, finance or management. The judges will favour authors who write with knowledge, creativity, originality and style and whose proposed books promise to break new ground, or examine pressing business challenges in original ways.
              
Only writers who are under 35 on November 11 2014 (the day the prize will be awarded) are eligible. They can be a published author, but the proposal itself must be original and must not have been previously submitted to a publisher.

The judging panel for 2014 comprises: 
Vindi Banga, partner, Clayton Dubilier & Rice
Lynda Gratton, professor, London Business School
Jorma Ollila, chairman, Royal Dutch Shell and Outokumpu
Dame Gail Rebuck, chair, Penguin Random House, UK

The proposal should be no longer than 5,000 words – an essay or an article that conveys the argument, scope and style of the proposed book – and must include a description of how the finished work would be structured, for example, a list of chapter headings and a short bullet-point description of each chapter. In addition entrants should submit a biography, emphasising why they are qualified to write a book on this topic. The best proposals will be published on FT.com.

The organisers cannot guarantee publication of any book by the winners or runners-up. The finalists will be invited to the November 11 dinner where the Bracken Bower Prize will be awarded alongside the Business Book of the Year Award, in front of an audience of publishers, agents, authors and business figures. Once the finalists’ entries appear on FT.com, authors will be free to solicit or accept offers from publishers. The closing date for entries is 5pm (BST) on September 30th 2014.




© 2014, David E. Giles