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A comparison of alternative covariance matrices for models with over-lapping observations
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Smith, Jeremy and Yadav, S. (1996) A comparison of alternative covariance matrices for models with over-lapping observations. Journal of International Money and Finance, Volume 15 (Number 5). pp. 813-823. doi:10.1016/0261-5606(96)00027-7 ISSN 0261-5606.
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Official URL: http://dx.doi.org/10.1016/0261-5606(96)00027-7
Abstract
This paper investigates the relative performance of alternative covariance matrices for models with ever-lapping observations commonly used in the finance literature. The alternative covariance matrices used are those of Hansen (1982), Newey and West (1987) (Bartlett and Quadratic Spectral (QS) weights) and Andrews and Monahan (1992) (QS weights). All matrices produce standard errors which are too small, yielding empirical size probabilities above their corresponding theoretical values, even in large samples. Empirical examples, such as testing efficiency in the foreign exchange market and mean reversion in stock prices, show that the choice of covariance matrix can affect the outcome of a hypothesis test. Copyright (C) 1996 Elsevier Science Ltd
Item Type: | Journal Article | ||||
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Subjects: | H Social Sciences > HG Finance | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Journal or Publication Title: | Journal of International Money and Finance | ||||
Publisher: | Elsevier BV | ||||
ISSN: | 0261-5606 | ||||
Official Date: | 1996 | ||||
Dates: |
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Volume: | Volume 15 | ||||
Number: | Number 5 | ||||
Number of Pages: | 11 | ||||
Page Range: | pp. 813-823 | ||||
DOI: | 10.1016/0261-5606(96)00027-7 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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