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Estimating cointegrated panels with common factors and the forward rate unbiasedness hypothesis

Westerlund, Joakim LU (2007) In Journal of Financial Econometrics 5(3). p.491-522
Abstract
This article proposes a bias-adjusted estimator for use in cointegrated panel regressions when the errors are cross-sectionally correlated through an unknown common factor structure. The asymptotic distribution of the new estimator is derived and is examined in small samples using Monte Carlo simulations. For the estimation of the number of factors, several information-based criteria are considered. The simulation results suggest that the new estimator performs well in comparison to existing ones. In our empirical application, we provide new evidence suggesting that the forward rate unbiasedness hypothesis cannot be rejected.
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
common factor model, forward rate unbiasedness hypothesis, cross-section dependence, panel cointegration, information criteria
in
Journal of Financial Econometrics
volume
5
issue
3
pages
491 - 522
publisher
Oxford University Press
external identifiers
  • wos:000250779100005
  • scopus:34447633396
ISSN
1479-8409
DOI
10.1093/jjfinec/nbm006
language
English
LU publication?
yes
id
0cf411a4-165c-4687-9439-843a4cfc39d7 (old id 974353)
date added to LUP
2008-01-30 15:48:25
date last changed
2017-01-01 04:29:11
@article{0cf411a4-165c-4687-9439-843a4cfc39d7,
  abstract     = {This article proposes a bias-adjusted estimator for use in cointegrated panel regressions when the errors are cross-sectionally correlated through an unknown common factor structure. The asymptotic distribution of the new estimator is derived and is examined in small samples using Monte Carlo simulations. For the estimation of the number of factors, several information-based criteria are considered. The simulation results suggest that the new estimator performs well in comparison to existing ones. In our empirical application, we provide new evidence suggesting that the forward rate unbiasedness hypothesis cannot be rejected.},
  author       = {Westerlund, Joakim},
  issn         = {1479-8409},
  keyword      = {common factor model,forward rate unbiasedness hypothesis,cross-section dependence,panel cointegration,information criteria},
  language     = {eng},
  number       = {3},
  pages        = {491--522},
  publisher    = {Oxford University Press},
  series       = {Journal of Financial Econometrics},
  title        = {Estimating cointegrated panels with common factors and the forward rate unbiasedness hypothesis},
  url          = {http://dx.doi.org/10.1093/jjfinec/nbm006},
  volume       = {5},
  year         = {2007},
}