Showing papers by "Melvin J. Hinich published in 2010"

Episodic Nonlinearity in Leading Global Currencies

Abstract: We perform non-linearity tests using daily data for leading currencies that include the Australian dollar, British pound, Brazilian real, Canadian dollar, euro, Japanese yen, Mexican peso, and the Swiss franc to resolve the issue of whether these currencies are driven by fundamentals or exogenous shocks to the global economy. In particular, we use a new method of testing for linear and nonlinear lead/lag relationships between time series, introduced by Brooks and Hinich (1999), based on the concepts of cross-correlation and cross-bicorrelation. Our evidence points to a relatively rare episodic nonlinearity within and across foreign exchange rates. We also test the validity of specifying ARCH-type error structures for foreign exchange rates. In doing so, we estimate Bollerslevs (1986) general- ized ARCH (GARCH) model and Nelsons (1988) exponential GARCH (EGARCH) model,using a variety of error densities [including the normal, the Student-t distribution, and the Generalized Error Distribution (GED)] and a comprehensive set of diagnostic checks. We apply the Brooks and Hinich (1999) nonlinearity test to the standardized residuals of the optimal GARCH/EGARCH model for each exchange rate series and show that the nonlinearity in the exchange rates is not due to ARCH-type e¤ects. This result has important implications for the interpretation of the recent voluminous literature which attempts to model fi nancial asset returns using this family of models.

Insiders, Outsiders, and Voters in the 2008 U.S. Presidential Election

Abstract: [I]f you believe it's time to challenge the Washington politics ... to restore a sense of mission to our politics and a sense of possibility to America ... I ask you to believe in yourself I ask you to believe again in the dream that we call America. --Barack Obama (1) In New Orleans, McCain said the word "change" or a variation of it more than 30 times in his speech--a sign that he knows what voters are looking for. --Holly Bailey (2) We have all been told that the 2008 presidential election was historic--not merely a consequential election, but a monumental moment in American history. This may, in fact, prove to be true. But in many ways, the 2008 presidential election was both predictable and quite comparable to a handful of past races. Consider that the 2008 election featured an incumbent party seeking a third consecutive presidential victory, but burdened by a costly war, a sagging economy, and an unpopular president. The elections of 1952 and 1968--both of which produced a change in party control of the White House--were surely relevant touchstones. Both Dwight D. Eisenhower and Richard M. Nixon pounded the incumbent administrations for their incompetence and malfeasance during their election campaigns, while promising to bring needed change and outside-the-Beltway sensibilities to Washington. Like those candidates, Barack Obama had a huge advantage and a clear path to the goal line in 2008. John McCain, on the other hand, needed to convince voters that a COP victory in 2008 would not constitute a "third term" for President George W. Bush. Because of these circumstances, both presidential campaigns attempted to capture the mantel of "reform." Their core strategic assumption was abundantly clear: a candidate who could tap into voters' frustration with the policies and politics of the last few years could expect a substantial electoral bonanza. The most obvious manifestation of this belief is that much of the rhetoric of the 2008 presidential campaign involved words such as "change," "reform," "outsider," and "maverick." But the truth is that we do not know very much about the electoral implications of being a "change" candidate in the United States. There is almost no empirical research on whether voters consider "outsider" candidates as better than "insider" candidates, or whether this particular distinction is even relevant to their political calculus. More specifically, there has been no systematic study of how the notion of "reform" politics played out in the 2008 presidential election. This study takes aim at this gap. We proceed in a straightforward manner. Initially, we propose using insights and assumptions from spatial theory to consider the nature of competition in U.S. presidential elections. Second, we examine data from the National Election Study (NES) from 1992 to 2004 to determine the number and character of dimensions structuring voters' perceptions of presidential candidates in those years. Third, we apply the same approach with data from the 2008 Cooperative Congressional Election Study (CCES) to consider the possibility of a reform--establishment dimension in the Obama-McCain contest. Fourth, we use postelection survey data from the University of Texas at Austin's Government Department polls to more precisely estimate (1) the distribution of voters along a reform-establishment dimension, (2) their perceptions of where the candidates and parties fell along this dimension, and (3) the impact of these perceptions on presidential vote choice. Fifth and finally, we speculate about the pervasiveness and components of reform sentiments in future U.S. elections and policy debates. The Dimensions of Political Competition In studying the potential role of reformist sentiment and candidates in 2008, we assume that voters and candidates are rational actors who attempt to maximize their utility when deciding for whom to vote. …

An investigation of duration dependence in the American stock market cycle

Abstract: This paper investigates the duration dependence of the US stock market cycles. A new classification method for bull and bear market regimes based on the crossing of the market index and its moving average is proposed. We show evidence of duration dependence in whole cycles. The half cycles, however, are found to be duration independent. More importantly, we find that the degree of duration dependence of the US stock market cycles has dropped after the launch of the NASDAQ index.

Intraday patterns in exchange rate of return of the chilean peso: new evidence for day-of-the-week effect

Abstract: We use a new statistical test based on the signal coherence function to detect subtle periodicities in the Chilean exchange rate. We resort to a unique intraday data set that allows us to capture persistent cyclical movements during the day that challenge the random walk hypothesis. We provide a microstructural explanation for the observed behavior, and also look at the day-of-the-week effect for the Chilean peso and find that the different days of the week indeed have different behavior patterns. This is an important result for investment allocation and risk assessment.

Identifying nonlinear serial dependence in volatile, high-frequency time series and its implications for volatility modeling

Abstract: In this article, we show how tests of nonlinear serial dependence can be applied to high-frequency time series data that exhibit high volatility, strong mean reversion, and leptokurtotis. Portmanteau correlation, bicorrelation, and tricorrelation tests are used to detect nonlinear serial dependence in the data. Trimming is used to control for the presence of outliers in the data. The data that are employed are 161,786 half-hourly spot electricity price observations recorded over nearly a decade in the wholesale electricity market in New South Wales, Australia. Strong evidence of nonlinear serial dependence is found and its implications for time series modeling are discussed.

Introduction to the special issue on nonlinear time series

Abstract: A nation's economy is a complex nonlinear dynamical system with links to other national economies. Classical macroeconomic models typically incorporate linear approximations to the nonlinear world and add simple dynamics to capture adjustments over time. Most of these simplifications offer little insight into the nonlinear structure of economic relationships that exist. Nor do they provide useful predictions beyond the short-term predictions of the autoregressive linear models from which they are derived.

Empirical Studies in Comparative Politics

Abstract: Nowhere in political science is the above statement truer than in the study of comparative politics. There have been many publications by public choice scholars, and many more by researchers who are at least sympathetic to the public choice perspective. Yet little of this work has been integrated into the main stream of comparative political science literature, and still less has made its way onto graduate readings lists.

Episodic Nonlinearity in Leading Global Currencies

Abstract: We perform non-linearity tests using daily data for leading currencies that include the Australian dollar, British pound, Brazilian real, Canadian dollar, euro, Japanese yen, Mexican peso, and the Swiss franc to resolve the issue of whether these currencies are driven by fundamentals or exogenous shocks to the global economy. In particular, we use a new method of testing for linear and nonlinear lead/lag relationships between time series, introduced by Brooks and Hinich (1999), based on the concepts of cross-correlation and cross-bicorrelation. Our evidence points to a relatively rare episodic nonlinearity within and across foreign exchange rates. We also test the validity of specifying ARCH-type error structures for foreign exchange rates. In doing so, we estimate Bollerslev’s (1986) generalized ARCH (GARCH) model and Nelson’s (1988) exponential GARCH (EGARCH) model, using a variety of error densities [including the normal, the Student-t distribution, and the Generalized Error Distribution (GED)] and a comprehensive set of diagnostic checks. We apply the Brooks and Hinich (1999) nonlinearity test to the standardized residuals of the optimal GARCH/EGARCH model for each exchange rate series and show that the nonlinearity in the exchange rates is not due to ARCH-type effects. This result has important implications for the interpretation of the recent voluminous literature which attempts to model financial asset returns using this family of models.

Testing for the Existence of a Generalized Wiener Process- the Case of Stock Prices

Abstract: In this article, we present two nonparametric trispectrum based tests for testing the hypothesis that an observed time series was generated by what we call a generalized Wiener process (GWP). Assuming the existence of a Weiner process for asset rates of return is critical to the Black-Scholes model and its extension by Merton (BSM). The Hinich trispectrum-based test of linearity and the trispectrum extension of the Hinich-Rothman bispectrum test for time reversibility are used to test the validity of BSM. We apply the tests to a selection of high frequency NYSE and Australian (ASX) stocks.