Beating the random walk in Central and Eastern Europe

Cuaresma, Jesús Crespo; Hlouskova, Jaroslava

doi:10.1002/for.952

Cited by 22 publications

(10 citation statements)

References 30 publications

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“…where ǫ t ∼ N 4×1 (0, Σ t ), ω t ∼ N 2×4 (0, Ω t , Σ t ) and µ t is the level of the series at time t. The design vector F = [1 0] ′ is invariant of time and a random walk evolution for the states Θ t has been chosen, which is suitable for modelling the compound returns (Tsay, 2002, Cuaresma andHlouskova, 2005). The volatility of the series is measured with the volatility matrix Σ t , which is subject to estimation.…”

Section: Discussionmentioning

confidence: 99%

Multivariate stochastic volatility with Bayesian dynamic linear models

Triantafyllopoulos

2008

Journal of Statistical Planning and Inference

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This paper develops a Bayesian procedure for estimation and forecasting of the volatility of multivariate time series. The foundation of this work is the matrix-variate dynamic linear model, for the volatility of which we adopt a multiplicative stochastic evolution, using Wishart and singular multivariate beta distributions. A diagonal matrix of discount factors is employed in order to discount the variances element by element and therefore allowing a flexible and pragmatic variance modelling approach. Diagnostic tests and sequential model monitoring are discussed in some detail. The proposed estimation theory is applied to a four-dimensional time series, comprising spot prices of aluminium, copper, lead and zinc of the London metal exchange. The empirical findings suggest that the proposed Bayesian procedure can be effectively applied to financial data, overcoming many of the disadvantages of existing volatility models.

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Section: Discussionmentioning

confidence: 99%

Multivariate stochastic volatility with Bayesian dynamic linear models

Triantafyllopoulos

2008

Journal of Statistical Planning and Inference

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“…Worthington & Higgs (2004) analysed market efficiency using methods applying the serial correlation coefficient, ADF (Augmented Dickey-Fuller), PP (Phillips-Perron) and KPSS (Kwiatkowski, Phillips, Schmidt and Shin) unit root tests and MVR (multiple variance ration) tests. Another paper constructed on a random walk framework is the paper by Cuaresma and Hlouskova (2005). An alternative issue to market efficiency is based on the degree of financial integration amongst the stock exchange markets in the Czech Republic, Hungry, Poland and Slovakia in comparison with the euro zone market (Babetskii, Komarek, & Komarkova, 2007).…”

Section: Introductionmentioning

confidence: 99%

Volatility and Correlations for Stock Markets in the Emerging Economies of Central and Eastern Europe: Implications for European Investors

2010

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“…Exchange rates are commonly seen as following a random walk (Cuaresma and Hlouskova, 2005). Reflecting a perfectly maintained peg, coherence, one would anticipate, at low frequencies, would be close to 1.…”

Section: A Well Functioning Fixed Exchange Ratementioning

confidence: 99%

Baltic States and the Euro: a spectral analysis of the 2007 financial crisis

Gray

2012

International Journal of Managerial Finance

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Purpose -The purpose of this paper is to examine whether the banking crisis in the USA and Western Europe that began in August 2007 precipitated a change in the relationship between the currencies of the Baltic States and the Euro, such that it could be described as shift contagion. The paper also considers whether the "hardness" of the currency peg affects the market reaction to that crisis. Design/methodology/approach -Shift contagion is said to be revealed if there a change in the co-movements of exchange rates after August 2007 compared with before. Change is revealed by coherence and phase shifts. Both are drawn from cross-spectral analysis. Findings -Rather than weaken, the bonds between the currency board-managed Kroon and the Litas, in a similar way to the Lat, exhibited greater bonding after the banking crisis began compared with before. The phase angles suggest some shift in money flows between the Baltic currencies and the Euro. With the Lat, the delays appear to be the same but at longer periodicies. The other two appear be subject to a reversal of money flows at various periodicies. Research limitations/implications -Spectral analysis reveals that bonding between currencies of ERMII countries and the Euro increased, but the structure of money flows changed as a result of the Western banking crisis in related geographical and financial markets, before a local crisis became evident. To what extent this is an improvement over correlation methods could be the basis of further research. The phase switch is a structural change that other techniques could not have revealed. Originality/value -The paper shows that spectral analysis could be more widely used in financial economics to reveal the impact of events on term structures.

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Beating the random walk in Central and Eastern Europe

Cited by 22 publications

References 30 publications

Multivariate stochastic volatility with Bayesian dynamic linear models

Multivariate stochastic volatility with Bayesian dynamic linear models

Volatility and Correlations for Stock Markets in the Emerging Economies of Central and Eastern Europe: Implications for European Investors

Baltic States and the Euro: a spectral analysis of the 2007 financial crisis

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