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91
2000): “Specification Analysis of Affine Term Structure Models
 Journal of Finance
"... This paper explores the structural differences and relative goodnessoffits of affine term structure models ~ATSMs!. Within the family of ATSMs there is a tradeoff between flexibility in modeling the conditional correlations and volatilities of the risk factors. This tradeoff is formalized by our ..."
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Cited by 336 (30 self)
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This paper explores the structural differences and relative goodnessoffits of affine term structure models ~ATSMs!. Within the family of ATSMs there is a tradeoff between flexibility in modeling the conditional correlations and volatilities of the risk factors. This tradeoff is formalized by our classification of Nfactor affine family into N � 1 nonnested subfamilies of models. Specializing to threefactor ATSMs, our analysis suggests, based on theoretical considerations and empirical evidence, that some subfamilies of ATSMs are better suited than others to explaining historical interest rate behavior. IN SPECIFYING A DYNAMIC TERM STRUCTURE MODEL—one that describes the comovement over time of short and longterm bond yields—researchers are inevitably confronted with tradeoffs between the richness of econometric representations of the state variables and the computational burdens of pricing and estimation. It is perhaps not surprising then that virtually all of the empirical implementations of multifactor term structure models that use time series data on long and shortterm bond yields simultaneously have focused on special cases of “affine ” term structure models ~ATSMs!.AnATSM accommodates timevarying means and volatilities of the state variables through affine specifications of the riskneutral drift and volatility coefficients. At the same time, ATSMs yield essentially closedform expressions for zerocouponbond prices ~Duffie and Kan ~1996!!, which greatly facilitates pricing and econometric implementation. The focus on ATSMs extends back at least to the pathbreaking studies by Vasicek ~1977! and Cox, Ingersoll, and Ross ~1985!, who presumed that the instantaneous short rate r~t! was an affine function of an Ndimensional state vector Y~t!, r~t! � d 0 � d y Y~t!, and that Y~t! followed Gaussian and squareroot diffusions, respectively. More recently, researchers have explored formulations of ATSMs that extend the onefactor Markov represen
Financial Intermediation and Growth: Causality and Causes
 JOURNAL OF MONETARY ECONOMICS
, 2000
"... This paper evaluates (1) whether the exogenous component of financial intermediary development influences economic growth and (2) whether crosscountry differences in legal and accounting systems (e.g., creditor rights, contract enforcement, and accounting standards) explain differences in the level ..."
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Cited by 325 (36 self)
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This paper evaluates (1) whether the exogenous component of financial intermediary development influences economic growth and (2) whether crosscountry differences in legal and accounting systems (e.g., creditor rights, contract enforcement, and accounting standards) explain differences in the level of financial development. Using both traditional crosssection, instrumental variable procedures and recent dynamic panel techniques, we find that the exogenous components of financial intermediary development is positively associated with economic growth. Also, the data show that crosscountry differences in legal and accounting systems help account for differences in financial development. Together, these findings suggest that legal and accounting reforms that strengthen creditor rights, contract enforcement, and accounting practices can boost financial development and accelerate economic growth.
The World Price of Covariance Risk
 Journal of Finance
, 1991
"... In a financially integrated global market, the conditionally expected return on a portfolio of securities from a particular country is determined by the country's world risk exposure. This paper measures the conditional risk of 17 countries. The reward per unit of risk is the world price of covarian ..."
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Cited by 164 (17 self)
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In a financially integrated global market, the conditionally expected return on a portfolio of securities from a particular country is determined by the country's world risk exposure. This paper measures the conditional risk of 17 countries. The reward per unit of risk is the world price of covariance risk. Although the tests provide evidence on the conditional mean variance efficiency of the benchmark portfolio, the results show that countries' risk exposures help explain differences in performance. Evidence is also presented which indicates that these risk exposures change through time and that the world price of covariance risk is not constant.
Nonlinear Pricing Kernels, Kurtosis Preference, and the CrossSection of Assets Returns
 Journal of Finance
, 2002
"... This paper investigates nonlinear pricing kernels in which the risk factor is endogenously determined and preferences restrict the definition of the pricing kernel. These kernels potentially generate the empirical performance of nonlinear and multifactor models, while maintaining empirical power and ..."
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Cited by 82 (2 self)
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This paper investigates nonlinear pricing kernels in which the risk factor is endogenously determined and preferences restrict the definition of the pricing kernel. These kernels potentially generate the empirical performance of nonlinear and multifactor models, while maintaining empirical power and avoiding ad hoc specifications of factors or functional form. Our test results indicate that preferencerestricted nonlinear pricing kernels are both admissible for the cross section of returns and are able to significantly improve upon linear single and multifactor kernels. Further, the nonlinearities in the pricing kernel drive out the importance of the factors in the linear multifactor model. A PRINCIPAL IMPLICATION OF THE Capital Asset Pricing Model ~CAPM! is that the pricing kernel is linear in a single factor, the portfolio of aggregate wealth. Numerous studies over the past two decades have documented violations of this restriction. 1 In response, researchers have examined the performance of alternative models of asset prices. These models have generally fallen into two classes: ~1! multifactor models such as Ross ’ APT or Merton’s ICAPM, in which factors in addition to the market return determine asset prices; or ~2! nonparametric models, such as Bansal et al. ~1993!, Bansal and Viswanathan ~1993!, and Chapman ~1997!, in which the pricing kernel is not
Estimation of copulabased semiparametric time series models
 J. Econometrics
, 2006
"... This paper studies the estimation of a class of copulabased semiparametric stationary Markov models. These models are characterized by nonparametric invariant (or marginal) distributions and parametric copula functions that capture the temporal dependence of the processes; the implied transition di ..."
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Cited by 35 (9 self)
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This paper studies the estimation of a class of copulabased semiparametric stationary Markov models. These models are characterized by nonparametric invariant (or marginal) distributions and parametric copula functions that capture the temporal dependence of the processes; the implied transition distributions are all semiparametric. Models in this class are easy to simulate, and can be expressed as semiparametric regression transformation models. One advantage of this copula approach is to separate out the temporal dependence (such as tail dependence) from the marginal behavior (such as fat tailedness) of a time series. We present conditions under which processes generated by models in this class are βmixing; naturally, these conditions depend only on the copula specification. Simple estimators of the marginal distribution and the copula parameter are provided, and their asymptotic properties are established under easily verifiable conditions. Estimators of important features of the transition distribution such as the (nonlinear) conditional moments and conditional quantiles are easily obtained from estimators of the marginal distribution and the copula parameter; their √ n − consistency and asymptotic normality can be obtained using the Delta method. In addition, the semiparametric
Identification, Weak Instruments, and Statistical Inference in Econometrics
 JOURNAL OF ECONOMICS
, 2003
"... ..."
Competitive pricing behavior in the auto market: A structural analysis
 Marketing Science
, 2001
"... In a competitive marketplace, the effectiveness of any element of the marketing mix is determined not only by its absolute value, but also by its relative value with respect to the competition. For example, the effectiveness of a price cut in increasing demand is critically related to competitors ’ ..."
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Cited by 23 (11 self)
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In a competitive marketplace, the effectiveness of any element of the marketing mix is determined not only by its absolute value, but also by its relative value with respect to the competition. For example, the effectiveness of a price cut in increasing demand is critically related to competitors ’ reaction to the price change. Managers therefore need to know the nature of competitive interactions among firms. In this paper, we take a theorydriven empirical approach to gain a deeper understanding of the competitive pricing behavior in the U.S. auto market. The abilitymotivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy (Boulding and Staelin 1995). We use arguments from the gametheoretic literature to understand firm motivation and abilities
Do Central Banks have Precautionary Demands for Expansions and for Price Stability? Theory and Evidence
, 2002
"... This paper analyses the impact of asymmetric preferences with respect to inflation and output by policymakers on interestrate reaction functions. A theoretical framework which makes it possible to identify the dominant type of asymmetry is developed and related to the precautionary demand of polic ..."
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Cited by 20 (6 self)
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This paper analyses the impact of asymmetric preferences with respect to inflation and output by policymakers on interestrate reaction functions. A theoretical framework which makes it possible to identify the dominant type of asymmetry is developed and related to the precautionary demand of policymakers for expansions and for low inflation. Using data for some G7 economies, the paper shows that, except for Germany, nonlinear and asymmetric behaviour is present. A main Þnding is that where credibilitybuilding and disinflation has already been achieved, the monetary authorities develop a greater precautionary demand for output expansions than for low inflation. This may generate a new type of inflation bias. Conversely, where credibilitybuilding is still a concern for the authorities, managing the business cycle is
Vertical Contracts between Manufacturers and Retailers: An Empirical Analysis
 DEPARTMENT OF AGRICULTURAL & RESOURCE ECONOMICS,UCB.CUDAREWORKINGPAPER943
, 2002
"... This paper tests different models of vertical contracting between manufacturers and retailers in the supermarket industry. I estimate demand and use the estimates to compute pricecost margins for retailers and manufacturers under different supply models without observing wholesale prices. I then te ..."
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Cited by 18 (0 self)
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This paper tests different models of vertical contracting between manufacturers and retailers in the supermarket industry. I estimate demand and use the estimates to compute pricecost margins for retailers and manufacturers under different supply models without observing wholesale prices. I then test which set of margins seems to be compatible with the margins obtained from direct estimates of cost and select the best among the nonnested competing models. The models considered are: (1) a double marginalization pricing model; (2) a vertically integrated model; and (3) a variety of alternative (strategic) supply scenarios, allowing for collusion, nonlinear pricing and strategic behavior with respect to private label products. Using data on yogurt sold at several stores in a large urban area of the United States, I find that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain. This is consistent with nonlinear pricing by the manufacturers or with high bargaining power of the retailers.
Term structure estimation without using latent factors
, 2004
"... The term structure is modeled as a function of observable and unobservable (latent) factors. I describe how to estimate the relation between the observed factors and the term structure without specifying or estimating latentfactor dynamics. Noarbitrage requirements are imposed in the estimation pr ..."
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Cited by 13 (0 self)
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The term structure is modeled as a function of observable and unobservable (latent) factors. I describe how to estimate the relation between the observed factors and the term structure without specifying or estimating latentfactor dynamics. Noarbitrage requirements are imposed in the estimation procedure. I apply the methodology to the joint dynamics of inflation and the term structure. As other research has noted, both shortterm and longterm bond yields adjust gradually to a change in inflation. I find that the dynamics of the price of interest rate risk needed to fit this pattern from 1983 through 2003 are implausible. An alternative interpretation is that investors were systematically surprised by the slow adjustment of shortterm yields to inflation.