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Business Analytics Seminars

The seminars are on Fridays at 11am in Room 498, Merewether Building (cnr of City Road and Butlin Avenue), unless otherwise specified.

The seminar organiser is Artem Prokhorov.

8th Aug 2014 - 11:00 am

Speaker:

Dr Peter Exterkate,

Affiliation:

Department of Economics and Business; Aarhus University

Venue:

Rm 498 Merewether Bldg H04

Title:

Distribution Forecasting in Non-Linear Models with Stochastic Volatility

Abstract:

Kernel ridge regression is a technique to perform ridge regression with a potentially infinite number of nonlinear transformations of the independent variables as regressors.  This makes it a powerful forecasting tool, which is applicable in many different contexts. However, it is usually applied only to independent and identically distributed observations.  This paper introduces a variant of kernel ridge regression for time series with stochastic volatility.  The conditional mean and volatility are both modelled as nonlinear functions of observed variables. We set up the estimation problem in a Bayesian manner and derive a Gibbs sampler to obtain draws from the predictive distribution.  A simulation study and an application to forecasting the distribution of returns on the S\&P500 index are presented, and we find that our method outperforms most popular GARCH variants in terms of one-day-ahead predictive ability.  Notably, most of this improvement comes from a more adequate approximation to the tails of the distribution.
15th Aug 2014 - 11:00 am

Speaker:

Associate Professor Jamie Alcock,

Affiliation:

Discipline of Finance; The University of Sydney

Venue:

Rm 498 Merewether Bldg H04

Title:

Characterising the Assymetric Dependence Premium

Abstract:

We examine the relative importance of asymmetric dependence (AD) and systematic risk in the cross-section of US equities. Using a ß-invariant AD metric, we demonstrate a lower-tail dependence premium equivalent to 35% of the market risk premium, compared with an upper-tail dependence discount that is 41% of the market risk premium. Lower-tail dependence displays a constant price between 1989-2009, while the discount associated with upper-tail dependence appears to be increasing in recent years. Subsequently, we find that return changes in US equities between 2007-2009 reflected changes in systematic risk and upper-tail dependence. This suggests that both systematic risk and AD should be managed in order to reduce the return impact of market downturns. Our findings have substantial implications for the cost of capital, investor expectations, portfolio management and performance assessment.

*joint work with Anthony Hatherley