Series: Working Papers. 1510.
Author: Javier Mencía and Enrique Sentana.
Topics: Quantitative methods | Crisis | Government debt | Financial risks | Business investment.
Published in: Journal of Business and Economic Statistics Volume 36, Issue 4, October 2018, Pages 599-614
Full document
Abstract
We compare semi-nonparametric expansions of the Gamma distribution with alternative Laguerre expansions, showing that they substantially widen the range of feasible moments of positive random variables. Then we combine those expansions with a component version of the Multiplicative Error Model to capture the mean reversion typical in positive but stationary financial time series. Finally, we carry out an empirical application in which we compare various asset allocation strategies for Exchange Traded Notes tracking VIX futures indices, which are increasingly popular but risky financial instruments. We show the superior performance of the strategies based on our econometric model.