Estimating the Spot Covariation of Asset Prices—Statistical Theory and Empirical Evidence

ABSTRACT

We propose a new estimator for the spot covariance matrix of a multi-dimensional continuous semimartingale log asset price process, which is subject to noise and nonsynchronous observations. The estimator is constructed based on a local average of block-wise parametric spectral covariance estimates. The latter originate from a local method of moments (LMM), which recently has been introduced by Bibinger et al.. We prove consistency and a point-wise stable central limit theorem for the proposed spot covariance estimator in a very general setup with stochastic volatility, leverage effects, and general noise distributions. Moreover, we extend the LMM estimator to be robust against autocorrelated noise and propose a method to adaptively infer the autocorrelations from the data. Based on simulations we provide empirical guidance on the effective implementation of the estimator and apply it to high-frequency data of a cross-section of Nasdaq blue chip stocks. Employing the estimator to estimate spot covariances, correlations, and volatilities in normal but also unusual periods yields novel insights into intraday covariance and correlation dynamics. We show that intraday (co-)variations (i) follow underlying periodicity patterns, (ii) reveal substantial intraday variability associated with (co-)variation risk, and (iii) can increase strongly and nearly instantaneously if new information arrives. Supplementary materials for this article are available online.     

Protecting the Old in a Young Economy: Old Age Insurance in the West Bank and Gaza Strip

Taking the West Bank and Gaza Strip as a reference point, this paper looks at social protection in developing economies, which are beset by economic stagnation, widespread poverty and unemployment. If the main breadwinner dies, is unable to work or is an older person, these factors are prime causes of absolute poverty. This is hardly surprising, since private and public systems of social security are totally inadequate in this area in particular. Current thinking on social security suggests that what is needed is the rapid introduction of a comprehensive system of retirement provision, comprising a mandatory capital-funded insurance component, with defined contributions, administered on a decentralized basis; and a state-administered pay-as-you-go basic insurance component with lump-sum transfers to safeguard the poorest. A system of this kind works to prevent poverty in old age by redistributing funds from some individuals to others and ensuring an income for life, and it represents a compromise between a fair return on what people have contributed and a fair distribution over society as a whole. It is thus a major force for stability in society.     

Verarmungsrisiken nach kritischen Lebensereignissen in Deutschland und den USA

We study how the impact of job loss, sickness, retirement, and family dissolution on the risk of relative income poverty differs between Germany and the United States, and whether the impact of these events has changed between 1980 and 2009. Americans are more likely than Germans to enter poverty after any of the four events, yet they also recover more quickly from job loss and family dissolution. Comparisons over time do not indicate a secular rise in the impact of critical life events on poverty risks, but our results show that poverty trajectories are subject to stronger cyclical fluctuations in the United States: Through its emphasis on market mechanisms, the liberal American welfare state raises the importance of (re-)employment opportunities for coping with the consequences of adverse life events. The absence of clear long-term trends leads to a reassessment of common views about welfare state change such as Jacob Hacker??s thesis of a ??Great Risk Shift?? or the notion of an ??Americanization?? of Continental European welfare states. So far, there is also little evidence that the often claimed recalibration of welfare states towards ??new social risks?? has alleviated the adverse economic consequences of family dissolution.     

The impact of macroeconomic conditions on income inequality

This paper analyzes the relationship between macroeconomic factors and the income distribution using data on equivalized disposable household income from the United Kingdom for 1961–99. We argue in favour of fitting a parametric functional form to the income distribution for each year, and then modeling the time series of model parameters in terms of the macroeconomic factors, as this better allows us to take into account non-stationarity in the time series. Estimates from models that relate income distribution parameters to cyclical variables in first differences (to account for non-stationarity) suggest that neither inflation nor unemployment have significant effects on income inequality. Compared to the commonly-used method of modelling the income shares directly, our approach indicates that there was no clear cut relationship between macroeconomic factors and the UK income distribution during the last third of the twentieth century.     

University–industry relationships and open innovation: Towards a research agenda

Organizations increasingly rely on external sources of innovation via inter‐organizational network relationships. This paper explores the diffusion and characteristics of collaborative relationships between universities and industry, and develops a research agenda informed by an ‘open innovation’ perspective. A framework is proposed, distinguishing university–industry relationships from other mechanisms such as technology transfer or human mobility. On the basis of the existing body of research, the role of practices such as collaborative research, university–industry research centres, contract research and academic consulting is analysed. The evidence suggests that such university–industry relationships are widely practised, whereby differences exist across industries and scientific disciplines. While most existing research focuses on the effects of university–industry links on innovation‐specific variables such as patents or firm innovativeness, the organizational dynamics of these relationships remain under‐researched. A detailed research agenda addresses research needs in two main areas: search and match processes between universities and firms, and the organization and management of collaborative relationships.     

Public procurement of innovation: empirical evidence from EU public authorities on barriers for the promotion of innovation

Public procurement is seen as a powerful instrument for innovation policy, but meaningful barriers seem to hinder its deployment. This study reviews literature on complexity, time consumption, and risk representing important hindrances for the procurement of innovation from public buyers' perspective. Findings provide evidence on the existence of hindrances for public procurement of innovation across European Union member states through the analysis of data from a large-scale survey. Further, differences in terms of the perception of barriers become evident depending on the availability of monitoring systems for innovation performance.     

Solving,Estimating, and Selecting Nonlinear Dynamic Models Without the Curse of Dimensionality

We present a comprehensive framework for Bayesian estimation of structural nonlinear dynamic economic models on sparse grids to overcome the curse of dimensionality for approximations. We apply sparse grids to a global polynomial approximation of the model solution, to the quadrature of integrals arising as rational expectations, and to three new nonlinear state space filters which speed up the sequential importance resampling particle filter. The posterior of the structural parameters is estimated by a new Metropolis–Hastings algorithm with mixing parallel sequences. The parallel extension improves the global maximization property of the algorithm, simplifies the parameterization for an appropriate acceptance ratio, and allows a simple implementation of the estimation on parallel computers. Finally, we provide all algorithms in the open source software JBendge for the solution and estimation of a general class of models.     

„Analysis of Categorical Data and Discrete Choices“ 30. Frühjahrsseminar des Zentralarchivs für Empirische Sozialforschung Universität zu Köln, 5.–23. März 2001

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