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157 CHAPTER 8 robust regressions A fter reading this chapter you will understand: ■ (^) Under what conditions standard regressio ...

158 The Basics of financial economeTrics parameters that represent the center or the spread of a distribution and that are robus ...

Robust Regressions 159 (^) θβ 0 βε^2 β 11 2 ,..., Nt t T tjtj j N t ()==YX−    == ∑∑ == ∑ 1 T (8.2) or, equivalently, equa ...

160 The Basics of financial economeTrics Thus far we have discussed methods to ascertain regression robustness. Let’s now discus ...

Robust Regressions 161 iteratively the weights through an iterative reweighted least squares (RLS) procedure. Clearly the iterat ...

162 The Basics of financial economeTrics TABLE 8.1 Leverage for Corporate Bond Spread Illustration Issue Leverage Point Issue # ...

Robust Regressions 163 TABLE 8.1 (Continued) Issue Leverage Point Issue # Leverage Point Issue # Leverage Point Issue # Leverag ...

164 The Basics of financial economeTrics Let’s illustrate the robustness of regression through another example. Let’s create an ...

Robust Regressions 165 When we examined the diagonal of the hat matrix, we found the fol- lowing results: Maximum leverage = 0.0 ...

166 The Basics of financial economeTrics We can conclude that all regression slope estimates are highly significant; the interce ...

Robust Regressions 167 The empirical correlation coefficient is the empirical covariance nor- malized with the product of the re ...

168 The Basics of financial economeTrics A robust correlation coefficient is defined as cS=+aX bY −−SaXbY 1 4 [( )(^22 )] The ro ...

Robust Regressions 169 Martin and Simin provide a feeling for the magnitude of the absolute difference between the OLS beta and ...

170 The Basics of financial economeTrics Key Points ■ (^) Robust statistics addresses the problem of obtaining estimates that ar ...

171 Chapter 9 Autoregressive Moving Average Models a fter reading this chapter you will understand: ■ (^) The concept of autoreg ...

172 The Basics of financial economeTrics be inefficient and sometimes inappropriate because they may not take advan- tage of the ...

Autoregressive Moving Average Models 173 The order n for an autoregressive model is unknown and must be deter- mined. Two approa ...

174 The Basics of financial economeTrics table 9.1 Partial Autocorrelations (PAC) for the Weekly Sample Returns of CRSP Value-We ...

Autoregressive Moving Average Models 175 AIC) when there are seven lags—denoted by AR(7). For the BIC, however, the model is opt ...

176 The Basics of financial economeTrics statistical significance of accumulated sample autocorrelations up to any specified lag ...