Research Interests: Information Systems, Computer Science, Economics, Econometrics, Financial Economics, and 15 moreForecasting, Predictability, Recurrent Neural Network, Portfolio, Social Science Research Network, Recurrent Neural Networks, Profitability, Indexation, Transaction Cost, Implied Volatility, Equity Law, Trading Strategy, Conditional Volatility, portfolio insurance, and Profitability Index
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This study relies on a structural approach model to investigate the determinants of Credit Default Swap (CDS) spread changes for Euro-zone’s financial institutions over the period January 2005 to October 2015. Going beyond the structural... more
This study relies on a structural approach model to investigate the determinants of Credit Default Swap (CDS) spread changes for Euro-zone’s financial institutions over the period January 2005 to October 2015. Going beyond the structural model, this study incorporates features such as the role of systemic risk factors, bank-specific characteristics and credit ratings. We adopt the dynamic framework provided by panel Vector Autoregressive Models which allows for endogeneity issues and this is a novelty of our approach. The main findings are that structural models seem to be more relevant during high volatile periods and that the relation between the CDS and its theoretical determinants is not constant over time. Overall, the empirical results suggest that structural models perform well in explaining bank credit risk, but determinants of CDS also rely on the underlying economic situation which should be taken into consideration when interpreting CDS spread changes.
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The purpose of this paper is to shed new light on the conflicting empirical evidence on the relationship between credit spreads and Treasury rates. Following a general-to-specific modeling approach, we were unable to accept the presence... more
The purpose of this paper is to shed new light on the conflicting empirical evidence on the relationship between credit spreads and Treasury rates. Following a general-to-specific modeling approach, we were unable to accept the presence of a long-run relationship between Baa credit spreads and long-term Treasury rates. At the same time, and in support of the structural models on credit risk modeling, a negative short-run relationship was obtained by means of impulse response functions. Subsequently, by employing a regime-switching estimation technique, we were able to establish the importance of the Treasury yield curve slope for the Baa credit spread determination in periods characterized by low interest rate volatility. Finally, we were able to provide evidence of an asymmetric response of the Baa credit spread to term spread changes according to the source of these changes, i.e. short or long term Treasury rates.
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ABSTRACT This paper investigates the nonlinear predictability of technical trading rules based on a recurrent neural network as well as a neurofuzzy model. The efficiency of the trading strategies was considered upon the prediction of the... more
ABSTRACT This paper investigates the nonlinear predictability of technical trading rules based on a recurrent neural network as well as a neurofuzzy model. The efficiency of the trading strategies was considered upon the prediction of the direction of the market in case of NASDAQ and NIKKEI returns. The sample extends over the period 2/8/1971–4/7/1998 while the sub-period 4/8/1998–2/5/2002 has been reserved for out-of-sample testing purposes. Our results suggest that, in absence of trading costs, the return of the proposed neurofuzzy model is consistently superior to that of the recurrent neural model as well as of the buy & hold strategy for bear markets. On the other hand, we found that the buy & hold strategy produces in general higher returns than neurofuzzy models or neural networks for bull periods. The proposed neurofuzzy model which outperforms the neural network predictor allows investors to earn significantly higher returns in bear markets.
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In this article we apply the Extreme Value Theory (EVT) in order to estimate the Value-at-Risk (VaR) and the correlation of extreme returns for two inherently unstable markets; the foreign exchange and the stock market. We also derive the... more
In this article we apply the Extreme Value Theory (EVT) in order to estimate the Value-at-Risk (VaR) and the correlation of extreme returns for two inherently unstable markets; the foreign exchange and the stock market. We also derive the corresponding VaR estimates from more ‘traditional’ methods of estimation on daily returns of the US dollar/Cyprus pound exchange rate and the Cyprus stock exchange general index. The main conclusion we reach is that the more heavy-tailed distributed a series is the more accurate the loss predictions are from the application of the EVT. We also show that the conditional correlation index of the extreme returns of those two markets remained almost constant throughout the backtesting period that was characterized by ‘bear’ market conditions.
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In this paper we study the dependence structure of extreme realization of returns between seven Southeast Asian stock markets and the U.S. Methodologically we apply the Multivariate Extreme Value theory that best suits to the problem... more
In this paper we study the dependence structure of extreme realization of returns between seven Southeast Asian stock markets and the U.S. Methodologically we apply the Multivariate Extreme Value theory that best suits to the problem under investigation. The main advantage of this approach is that it generates dependence measures even if the multivariate Gaussian distribution does not apply, as the case is for the tails of the high frequency stock index returns distributions. The empirical evidence suggests that Constant and Dynamic Conditional Correlation GARCH(1,1) models produce estimates of the correlation coefficient with a similar ranking to the ones produced from the Multivariate Extreme Value theory. This evidence is substantiated from a formal clustering analysis. The policy implication of our study is that the benefits from portfolio diversification with assets from the Southeast Asian stock markets are not eroded during crisis periods.
Research Interests: Economics, Stock Market, Emerging Markets, High Frequency, Emerging Market, and 11 moreExtreme Value Theory, Cluster Analysis, Dynamic Conditional Correlation, Gaussian distribution, Empirical evidence, Correlation coefficient, Indexation, Portfolio Diversification, Multivariate Extremes, Multivariate GARCH, and GARCH Model
This study investigates the dependence structure of extreme realization of returns between the mature markets of Japan and the U.S. and the emerging markets of Cyprus, Greece and that of six Asia- Pacific counties, with the application of... more
This study investigates the dependence structure of extreme realization of returns between the mature markets of Japan and the U.S. and the emerging markets of Cyprus, Greece and that of six Asia- Pacific counties, with the application of multivariate Extreme Value Theory that best suits to the problem under investigation. The evidence we obtain indicates that the left tail extreme correlations (downside risk) are not substantially different from the unconditional ones or from those obtained from a multivariate Dynamic Conditional Correlation GARCH model (DCC) with asymmetric GJRGARCH univariates. Moreover, a clustering analysis shows that the examined countries do not belong to a distinct block on the basis of the extreme correlations we have estimated. The policy implications are that the benefits from portfolio diversification between the Cyprus stock market and the markets of Asia-Pacific countries, Greece, Japan and the U.S. are not eroded during crisis periods, in that no &quo...
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This paper addresses the issue of the empirical inv estigation of monetary policy independence as this is manifested in the in t r–relationships between domestic and foreign money market interest rates. I n tead of following an ad– hoc... more
This paper addresses the issue of the empirical inv estigation of monetary policy independence as this is manifested in the in t r–relationships between domestic and foreign money market interest rates. I n tead of following an ad– hoc econometric approach, we have imposed a specifi c economic structure on the proposed model by establishing a link of the yield curves of two different countries through the Uncovered Interest Rate P arity, UIP. The expecta tions hypothesis of the term structure and the UIP imply certain overidentifying restrictions on the cointegrating space of a ve ctor autoregressive process consisting of the interest rates of the two markets . The model has been tested on data from the domestic US money market and the e uromark and euroyen markets. The main finding of our analysis is that we reject the overidentifying restrictions of the models for the USD/DEM case but we are unable to reject them for the USD/JPY case, at the one percent signi fica ce level and thi...
ABSTRACT This study examines the proposition that destabilizing speculation caused the overvaluation of the pound sterling in mid-1924 and the depreciation of the franc Poincare in mid-l925, by testing for the existence of long-run... more
ABSTRACT This study examines the proposition that destabilizing speculation caused the overvaluation of the pound sterling in mid-1924 and the depreciation of the franc Poincare in mid-l925, by testing for the existence of long-run purchasing power parity in the 1920s for the dollar sterling, franc sterling and franc dollar exchange rates. Using the Johansen-Juselius multivariate cointegration technique, evidence was found in favour of PPP in all the cases. However, using Hansen-Johansen (1993) tests for parameter constancy in cointegrated VAR models, it was found that the results for the dollar sterling case are very fragile, and this may be interpreted as evidence that destabilizing speculation caused the overvaluation of sterling, while the results for the franc Poincare are rather robust, indicating that it was not deliberately undervalued. Copyright 2000 by Taylor and Francis Group
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ABSTRACT In this paper we analyse the implications for Q models of investment of replacing the assumption of perfect competition in the output market with the assumption of monopolistic competition. The structural investment equation that... more
ABSTRACT In this paper we analyse the implications for Q models of investment of replacing the assumption of perfect competition in the output market with the assumption of monopolistic competition. The structural investment equation that can be derived in this case has a richer dynamic structure than the conventional one and it contains, in addition to present and future Q, output as an explanatory variable. In the applied section we discuss the extent to which monopolistic competition helps in providing a remedy for the empirical weaknesses of Q models. The estimates are obtained using aggregate data for U.K. industrial and commercial companies for the period 1951–1979.
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In this paper we develop a comprehensive Vector Autoregression Model consisting of five variables; the stock market and price indices of pairs of countries, as well as their bilateral nominal exchange rate. Then, we show that under... more
In this paper we develop a comprehensive Vector Autoregression Model consisting of five variables; the stock market and price indices of pairs of countries, as well as their bilateral nominal exchange rate. Then, we show that under certain long-run restrictions, our approach encompasses a large number of specifications encountered in the voluminous literature on testing for capital integration with cointegration techniques. This approach minimizes the risk of accepting the null of no cointegration between the equity price indices because of the introduction of additional stochastic trends through the transformation of those indices on a “real or nominal US dollar” basis. Furthermore, other interesting long run specifications emerge either with I(1) only stochastic shocks or with the presence of some I(2) disturbances characterizing the system. We apply the testing methodology on monthly data for the US, UK, Germany, and Japan for the period January 1980–May 2019. The main findings p...
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During the recent global financial and Euro-area sovereign debt crises we witnessed a dramatic increase in the correlation between sovereign and bank default risk prices. In this paper we try to separate the portion of the correlation... more
During the recent global financial and Euro-area sovereign debt crises we witnessed a dramatic increase in the correlation between sovereign and bank default risk prices. In this paper we try to separate the portion of the correlation that is attributed to developments in common risk factors, which capture changes in the degree of risk aversion and the perceived amount of risk among international investors, from the impact of domestic or idiosyncratic risk factors. We employ a panel VAR model where all variables are treated as endogenous and the common risk factors are represented by widely used default and liquidity indexes. In this framework the residuals from the panel VAR model are associated with the effect that domestic/idiosyncratic factors have on sovereign and bank CDS prices. The main result we derive is that the European banking sector reacted homogeneously during the 2007:1–2009:12 period but after 2010, Euro-area Periphery countries became more “idiosyncratic”. Moreover, calculated directional volatility spillovers indicate that Eurozone periphery countries were net receivers and not net contributors to the financial instability caused by the subprime and the Eurozone sovereign debt crises.
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ABSTRACT The intertemporal maximization problem of the firm under adjustment costs for its factors of production and imperfect competition in the output market is considered. The first-order conditions, with respect to capital and labour,... more
ABSTRACT The intertemporal maximization problem of the firm under adjustment costs for its factors of production and imperfect competition in the output market is considered. The first-order conditions, with respect to capital and labour, the production function and the demand equation have been jointly estimated using Greek manufacturing data and values for the structural parameters have been obtained. The estimates are plausible and most of them significant. Tests of the overidentifying restirctions are unable to reject the overall specification of the model at conventional levels of significance.
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In this paper we attempt to predict the direction of change of the S&P500 index over the period 8 April 1998 to 5 February 2002 by means of a recurrent neural network (RNN). We demonstrate that the incorporation in the... more
In this paper we attempt to predict the direction of change of the S&P500 index over the period 8 April 1998 to 5 February 2002 by means of a recurrent neural network (RNN). We demonstrate that the incorporation in the trading rule of the Chicago Board Options Exchange (CBOE) volatility index changes strongly enhances its profitability during ‘bear’ market periods.
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Thesis (Ph. D.)--University of Essex, 1989.
This paper addresses the issue of the empirical investigation of monetary policy independence as this is manifested in the inter–relationships between domestic and foreign money market interest rates. Instead of following an ad–hoc... more
This paper addresses the issue of the empirical investigation of monetary policy independence as this is manifested in the inter–relationships between domestic and foreign money market interest rates. Instead of following an ad–hoc econometric approach, we have imposed a specific economic structure on the proposed model by establishing a link of the yield curves of two different countries through the Uncovered Interest Rate Parity, UIP. The expectations hypothesis of the term structure and the UIP imply certain overidentifying restrictions on the cointegrating space of a vector autoregressive process consisting of the interest rates of the two markets. The model has been tested on data from the domestic US money market and the euromark and euroyen markets. The main finding of our analysis is that we reject the overidentifying restrictions of the models for the USD/DEM case but we are unable to reject them for the USD/JPY case, at the one percent significance level and this implies t...
ABSTRACT The intertemporal maximization problem of the firm under adjustment costs for its factors of production and imperfect competition in the output market is considered. The first-order conditions, with respect to capital and labour,... more
ABSTRACT The intertemporal maximization problem of the firm under adjustment costs for its factors of production and imperfect competition in the output market is considered. The first-order conditions, with respect to capital and labour, the production function and the demand equation have been jointly estimated using Greek manufacturing data and values for the structural parameters have been obtained. The estimates are plausible and most of them significant. Tests of the overidentifying restirctions are unable to reject the overall specification of the model at conventional levels of significance.
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ABSTRACT A test is made for the existence of long-run purchasing power parity (PPP) for three drahma bilateral exchange rates during the 1920s. Maximim likelihood estimation techniques of cointegration vectors are employed and they... more
ABSTRACT A test is made for the existence of long-run purchasing power parity (PPP) for three drahma bilateral exchange rates during the 1920s. Maximim likelihood estimation techniques of cointegration vectors are employed and they produce strong evidence in favour or PPP.
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The concurrent era is characterised by strengthened interactions among financial markets and increased capital mobility globally. In this frames we examine the effects the international financial integration process has on the European... more
The concurrent era is characterised by strengthened interactions among financial markets and increased capital mobility globally. In this frames we examine the effects the international financial integration process has on the European bond markets. We perform a comparative study of the interactions of the European and international bond markets and exploit Cointegration analysis results on the elimination of stochastic trends and the decomposition of the underlying long run equilibria and short run causal relations. Our investigation provides evidence on the relation between the European integration process and that of globalisation, viewed through the bond markets' sector. Additionally the structural formulation applied, offers significant implications of the findings. All in all our analysis offers a number of answers on crucial queries towards the European bond markets integration process. HE European bond markets convergence, which has depicted in the period towards the ado...
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This paper re-examines the long-run properties of the monetary exchange rate model in the presence of a parallel or black market for U.S. dollars in two Latin American countries under the twin hypotheses that the system contains variables... more
This paper re-examines the long-run properties of the monetary exchange rate model in the presence of a parallel or black market for U.S. dollars in two Latin American countries under the twin hypotheses that the system contains variables that are I(2) and that a linear trend is required in the cointegrating relations. Using the recent I(2) test by Rahbek et al. (1999) to examine the presence of I(2) and I(1) components in a multivariate context we find that the linear trend hypothesis could not be rejected and we find evidence that the system contains two I(2) variables for each country namely, Chile and Mexico, and this finding is reconfirmed by the estimated roots of the companion matrix (Juselius, 1995). The I(2) component led to the transformation of the estimated model by imposing long-run but not short-run proportionality between domestic and foreign money. Three statistically significant cointegrating vectors were found and, by imposing linear restrictions on each vector as ...
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In this paper we examine the dynamics of European sovereign bond yield spreads focusing on issues related to financial integration and market conditions. The finding of near-unit-root effects highlights the need for careful econometric... more
In this paper we examine the dynamics of European sovereign bond yield spreads focusing on issues related to financial integration and market conditions. The finding of near-unit-root effects highlights the need for careful econometric specification. Thus we formulate sovereign bond yield spreads, for eleven EMU countries against the Bund for the period 1992:1-2009:12, as AR(1) processes, while allowing for regime switching effects, along the lines of a Markovian probabilistic specification. Specifically, by taking into account regime switching effects we examine, rather than assume, that monetary unification affected sovereign bond yield spreads, allowing for states of higher and lower interactions to be revealed. Next, we examine the effects of several exogenous explanatory variables. Our results indicate that European sovereign bonds achieved only partial integration even before the recent financial crisis, while financial integration and financial stability are found to be inter...
This study investigates the dependence structure of extreme realization of returns between the mature markets of Japan and the U.S. and the emerging markets of Cyprus, Greece and that of six Asia- Pacific counties, with the application of... more
This study investigates the dependence structure of extreme realization of returns between the mature markets of Japan and the U.S. and the emerging markets of Cyprus, Greece and that of six Asia- Pacific counties, with the application of multivariate Extreme Value Theory that best suits to the problem under investigation. The evidence we obtain indicates that the left tail extreme correlations (downside risk) are not substantially different from the unconditional ones or from those obtained from a multivariate Dynamic Conditional Correlation GARCH model (DCC) with asymmetric GJRGARCH univariates. Moreover, a clustering analysis shows that the examined countries do not belong to a distinct block on the basis of the extreme correlations we have estimated. The policy implications are that the benefits from portfolio diversification between the Cyprus stock market and the markets of Asia-Pacific countries, Greece, Japan and the U.S. are not eroded during crisis periods, in that no “cor...