Sauder School of Business
University of British Columbia
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Institutional Affiliation: University of British Columbia
Information about this author at RePEc
NBER Working Papers and Publications
|December 2006||Multifrequency Jump-Diffusions: An Equilibrium Approach|
with Laurent E. Calvet: w12797
This paper proposes that equilibrium valuation is a powerful method to generate endogenous jumps in asset prices, which provides a structural alternative to traditional reduced-form specifications with exogenous discontinuities. We specify an economy with continuous consumption and dividend paths, in which endogenous price jumps originate from the market impact of regime-switches in the drifts and volatilities of fundamentals. We parsimoniously incorporate shocks of heterogeneous durations in consumption and dividends while keeping constant the number of parameters. Equilibrium valuation creates an endogenous relation between a shock's persistence and the magnitude of the induced price jump. As the number of frequencies driving fundamentals goes to infinity, the price process converges to ...
Published: Calvet, Laurent E. & Fisher, Adlai J., 2008.
"Multifrequency jump-diffusions: An equilibrium approach,"
Journal of Mathematical Economics,
Elsevier, vol. 44(2), pages 207-226, January.
citation courtesy of
|June 2005||Multifrequency News and Stock Returns|
with Laurent E. Calvet: w11441
Recent research documents that aggregate stock prices are driven by shocks with persistence levels ranging from daily intervals to several decades. Building on these insights, we introduce a parsimonious equilibrium model in which regime-shifts of heterogeneous durations affect the volatility of dividend news. We estimate tightly parameterized specifications with up to 256 discrete states on daily U.S. equity returns. The multifrequency equilibrium has significantly higher likelihood than the classic Campbell and Hentschel (1992) specification, while generating volatility feedback effects 6 to 12 times larger. We show in an extension that Bayesian learning about stochastic volatility is faster for bad states than good states, providing a novel source of endogenous skewness that complements...
Published: Calvet, Laurent E. and Adlai J. Fisher. "Multifrequency News and Stock Returns." Journal of Financial Economics 86, 1 (October 2007): 178-212. citation courtesy of
|August 2004||Volatility Comovement: A Multifrequency Approach|
with Laurent E. Calvet, Samuel B. Thompson: t0300
We implement a multifrequency volatility decomposition of three exchange rates and show that components with similar durations are strongly correlated across series. This motivates a bivariate extension of the Markov-Switching Multifractal (MSM) introduced in Calvet and Fisher (2001, 2004). Bivariate MSM is a stochastic volatility model with a closed-form likelihood. Estimation can proceed by ML for state spaces of moderate size, and by simulated likelihood via a particle filter in high-dimensional cases. We estimate the model and confirm its main assumptions in likelihood ratio tests. Bivariate MSM compares favorably to a standard multivariate GARCH both in- and out-of-sample. We extend the model to multivariate settings with a potentially large number of assets by proposing a parsimoniou...
Published: Calvet, Laurent E., Adlai J. Fisher and Samuel B. Thompson. "Volatility Comovement: A Multifrequency Approach," Journal of Econometrics, 2006, v131(1-2,Mar-Apr), 179-215.
|July 2003||Regime-Switching and the Estimation of Multifractal Processes|
with Laurent Calvet: w9839
We propose a discrete-time stochastic volatility model in which regime switching serves three purposes. First, changes in regimes capture low frequency variations, which is their traditional role. Second, they specify intermediate frequency dynamics that are usually assigned to smooth autoregressive processes. Finally, high frequency switches generate substantial outliers. Thus, a single mechanism captures three important features of the data that are typically addressed as distinct phenomena in the literature. Maximum likelihood estimation is developed and shown to perform well in finite sample. We estimate on exchange rate data a version of the process with four parameters and more than a thousand states. The estimated model compares favorably to earlier specifications both in- and out-o...
Published: Calvet, Laurent E. and Adlai J. Fisher. "How To Forecast Long-Run Volatility: Regime Switching And The Estimation Of Multifractal Processes," Journal of Financial Econometrics, 2004, v2(1,Winter), 49-83.