New Approaches to Robust Inference on Market (Non-)efficiency, Volatility Clustering and Nonlinear Dependence
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New Approaches to Robust Inference on Market (Non-)efficiency, Volatility Clustering and Nonlinear Dependence. / Ibragimov, Rustam; Pedersen, Rasmus Søndergaard; Skrobotov, Anton.
I: Journal of Financial Econometrics, 2024.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - New Approaches to Robust Inference on Market (Non-)efficiency, Volatility Clustering and Nonlinear Dependence
AU - Ibragimov, Rustam
AU - Pedersen, Rasmus Søndergaard
AU - Skrobotov, Anton
PY - 2024
Y1 - 2024
N2 - We present novel, robust methods for inference on market (non-)efficiency, volatility clustering, and nonlinear dependence in financial return series. In contrast to existing methodology, our proposed methods are robust against nonlinear dynamics and tail-heaviness of returns. Specifically, our methods only rely on return processes being stationary and weakly dependent (mixing) with finite moments of a suitable order. This includes robustness against power-law distributions associated with nonlinear dynamic models such as GARCH and stochastic volatility. The methods are easy to implement and perform well in realistic settings. We revisit a recent study by Baltussen, van Bekkum, and Da (2019, J. Financ. Econ., 132, 26–48) on autocorrelation in major stock indexes. Using our robust methods, we document that the evidence of the presence of negative autocorrelation is weaker, compared with the conclusions of the original study.
AB - We present novel, robust methods for inference on market (non-)efficiency, volatility clustering, and nonlinear dependence in financial return series. In contrast to existing methodology, our proposed methods are robust against nonlinear dynamics and tail-heaviness of returns. Specifically, our methods only rely on return processes being stationary and weakly dependent (mixing) with finite moments of a suitable order. This includes robustness against power-law distributions associated with nonlinear dynamic models such as GARCH and stochastic volatility. The methods are easy to implement and perform well in realistic settings. We revisit a recent study by Baltussen, van Bekkum, and Da (2019, J. Financ. Econ., 132, 26–48) on autocorrelation in major stock indexes. Using our robust methods, we document that the evidence of the presence of negative autocorrelation is weaker, compared with the conclusions of the original study.
U2 - 10.1093/jjfinec/nbad020
DO - 10.1093/jjfinec/nbad020
M3 - Journal article
JO - Journal of Financial Econometrics
JF - Journal of Financial Econometrics
SN - 1479-8409
ER -
ID: 365964181