Research

Publications

1. How arbitrage-free is the Nelson and Siegel model? (with Ken Nyholm and Rositsa Vidova-Koleva).

Journal of Empirical Finance 18(3), 393-407, 2011.

Previous version: How arbitrage-free is the Nelson and Siegel model? ECB Working Paper No 874 February 2008.

We test whether the Nelson and Siegel (1987) yield curve model is arbitrage-free. Theoretically, the Nelson-Siegel model does not ensure the absence of arbitrage opportunities, as shown by Bjork and Christensen (1999) and Filipovic (1999). Still, central banks and wealth managers rely heavily on it. Using zero-coupon yield curve data from the US market, we find that the no-arbitrage parameters are not statistically different from those obtained from the Nelson-Siegel model. We therefore conclude that the Nelson-Siegel yield curve model is compatible with the no-arbitrage constraints on the US market. To corroborate this result, we also show that the Nelson-Siegel model performs as well as its no-arbitrage counterpart in an out-of-sample forecasting experiment.

2. A simple two-component model for the distribution of intraday returns (with David Veredas).

The European Journal of Finance 18(9), 775-797, 2012 [Web Appendix PDF Excel]

Previous version: Intraday seasonality of returns distribution. A quantile regression approach and intraday VaR, CORE Discussion Paper 2006/77.

We model the conditional probability law of high frequency financial returns by means of quantile regression. Using three years of 30 minutes sampled returns for a set of stocks traded at the Spanish Stock Exchange, a pure limit order book electronic platform, we show that the conditional probability density depends on past returns and on the time of the day. Two practical applications illustrate the usefulness of the methodology. First, we provide quantile-based measures of conditional volatility, asymmetry and kurtosis that do not depend on the existence of moments. We find seasonal patterns and time dependencies beyond volatility. Second, we estimate and forecast intraday Value at Risk. A battery of tests show that our methodology delivers good risk assessments for intraday returns, and it clearly outperforms GARCH-based Value at Risk assessments.

Working Papers

1. Testing for optimal monetary policy via moment inequalities (with Valentina Corradi and Paulo Santos Monteiro) York Discussion Paper 13/07

Previous version: Testing for the degree of commitment via set-identification

The specification of an optimizing model of the monetary transmission mechanism requires selecting a policy regime, commonly commitment or discretion. In this paper we propose a new procedure for testing optimal monetary policy, relying on moment inequalities that nest commitment and discretion as two special cases. The approach is based on the derivation of bounds for inflation that are consistent with optimal policy under either policy regime. We derive testable implications that allow for specification tests and discrimination between the two alternative regimes. The proposed procedure is implemented to examine the conduct of monetary policy in the United States economy.

2. Unspanned macroeconomic factors in the yield curve (with Domenico Giannone and Michele Modugno) ECARES Working Paper 2013-07

We show that two macroeconomic factors have an important predictive content for government bond yields and excess returns. These factors are not spanned by the cross-section of yields and are well proxied by economic growth and real interest rates.

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Teaching

2012-13 Financial Economics and Capital Markets – University of York

2009-12 Time Series Econometrics – University of Manchester

2009-12 Further Econometrics – University of Manchester, graduate

2011-12 Applied Macroeconometrics – University of Manchester, graduate (first part)

2010-12 Financial Econometrics – University of Manchester (first part)

2009-10 Introductory Statistics – University of Manchester (first part)

2006-09 Econometrics – ECARES - Université Libre de Bruxelles, graduate (Teaching Assistant)

2007-08 Econometrics of Financial Markets – University of Bologna (Teaching Assistant)

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Laura Coroneo