Cross‐Section Stock Return and Implied Covariance between Jump and Diffusive Volatility

I examine the information content of option‐implied covariance between jumps and diffusive risk in the cross‐sectional variation in future returns. This paper documents that the difference between realized volatility and implied covariance (RV‐ICov) can predict future returns. The results show a significant and negative association of expected return and realized volatility–implied covariance spread in both the portfolio level analysis and cross‐sectional regression study. A trading strategy of buying a portfolio with the lowest RV‐ICov quintile portfolio and selling with the highest one generates positive and significant returns. This RV‐Cov anomaly is robust to controlling for size, book‐to‐market value, liquidity and systematic risk proportion. Copyright © 2015 John Wiley & Sons, Ltd.     

A decision rule to minimize daily capital charges in forecasting value‐at‐risk

Under the Basel II Accord, banks and other authorized deposit‐taking institutions (ADIs) have to communicate their daily risk estimates to the monetary authorities at the beginning of the trading day, using a variety of value‐at‐risk (VaR) models to measure risk. Sometimes the risk estimates communicated using these models are too high, thereby leading to large capital requirements and high capital costs. At other times, the risk estimates are too low, leading to excessive violations, so that realized losses are above the estimated risk. In this paper we analyze the profit‐maximizing problem of an ADI subject to capital requirements under the Basel II Accord as ADIs have to choose an optimal VaR reporting strategy that minimizes daily capital charges. Accordingly, we suggest a dynamic communication and forecasting strategy that responds to violations in a discrete and instantaneous manner, while adapting more slowly in periods of no violations. We apply the proposed strategy to Standard & Poor's 500 Index and show there can be substantial savings in daily capital charges, while restricting the number of violations to within the Basel II penalty limits. Copyright © 2009 John Wiley & Sons, Ltd.     

Testing Interval Forecasts: A GMM‐Based Approach

This paper proposes a new evaluation framework for interval forecasts. Our model‐free test can be used to evaluate interval forecasts and high‐density regions, potentially discontinuous and/or asymmetric. Using a simple J‐statistic, based on the moments defined by the orthonormal polynomials associated with the binomial distribution, this new approach presents many advantages. First, its implementation is extremely easy. Second, it allows for a separate test for unconditional coverage, independence and conditional coverage hypotheses. Third, Monte Carlo simulations show that for realistic sample sizes our GMM test has good small‐sample properties. These results are corroborated by an empirical application on SP500 and Nikkei stock market indexes. It confirms that using this GMM test leads to major consequences for the ex post evaluation of interval forecasts produced by linear versus nonlinear models. Copyright © 2011 John Wiley & Sons, Ltd.     

Hybrid Forecasting with Estimated Temporally Aggregated Linear Processes

We introduce a new strategy for the prediction of linear temporal aggregates; we call it ‘hybrid’ and study its performance using asymptotic theory. This scheme consists of carrying out model parameter estimation with data sampled at the highest available frequency and the subsequent prediction with data and models aggregated according to the forecasting horizon of interest. We develop explicit expressions that approximately quantify the mean square forecasting errors associated with the different prediction schemes and that take into account the estimation error component. These approximate estimates indicate that the hybrid forecasting scheme tends to outperform the so‐called ‘all‐aggregated’ approach and, in some instances, the ‘all‐disaggregated’ strategy that is known to be optimal when model selection and estimation errors are neglected. Unlike other related approximate formulas existing in the literature, those proposed in this paper are totally explicit and require neither assumptions on the second‐order stationarity of the sample nor Monte Carlo simulations for their evaluation. Copyright © 2014 John Wiley & Sons, Ltd.     

Price–Dividend Ratios and Stock Price Predictability

A long‐standing puzzle to financial economists is the difficulty of outperforming the benchmark random walk model in out‐of‐sample contests. Using data from the USA over the period of 1872–2007, this paper re‐examines the out‐of‐sample predictability of real stock prices based on price–dividend (PD) ratios. The current research focuses on the significance of the time‐varying mean and nonlinear dynamics of PD ratios in the empirical analysis. Empirical results support the proposed nonlinear model of the PD ratio and the stationarity of the trend‐adjusted PD ratio. Furthermore, this paper rejects the non‐predictability hypothesis of stock prices statistically based on in‐ and out‐of‐sample tests and economically based on the criteria of expected real return per unit of risk. Copyright © 2011 John Wiley & Sons, Ltd.     

Exploring Survey‐Based Inflation Forecasts

This paper first shows that survey‐based expectations (SBE) outperform standard time series models in US quarterly inflation out‐of‐sample prediction and that the term structure of survey‐based inflation forecasts has predictive power over the path of future inflation changes. It then proposes some empirical explanations for the forecasting success of survey‐based inflation expectations. We show that SBE pool a large amount of heterogeneous information on inflation expectations and react more flexibly and accurately to macro conditions both contemporaneously and dynamically. We illustrate the flexibility of SBE forecasts in the context of the 2008 financial crisis. Copyright © 2011 John Wiley & Sons, Ltd.     

Conditional and joint multiple-SNP analysis of GWAS summary statistics identifies additional variants influencing complex traits

We present an approximate conditional and joint association analysis that can use summary-level statistics from a meta-analysis of genome-wide association studies (GWAS) and estimated linkage disequilibrium (LD) from a reference sample with individual-level genotype data. Using this method, we analyzed meta-analysis summary data from the GIANT Consortium for height and body mass index (BMI), with the LD structure estimated from genotype data in two independent cohorts. We identified 36 loci with multiple associated variants for height (38 leading and 49 additional SNPs, 87 in total) via a genome-wide SNP selection procedure. The 49 new SNPs explain approximately 1.3% of variance, nearly doubling the heritability explained at the 36 loci. We did not find any locus showing multiple associated SNPs for BMI. The method we present is computationally fast and is also applicable to case-control data, which we demonstrate in an example from meta-analysis of type 2 diabetes by the DIAGRAM Consortium.     

Genome-wide association study identifies a new melanoma susceptibility locus at 1q21.3

We performed a genome-wide association study of melanoma in a discovery cohort of 2,168 Australian individuals with melanoma and 4,387 control individuals. In this discovery phase, we confirm several previously characterized melanoma-associated loci at MC1R, ASIP and MTAP-CDKN2A. We selected variants at nine loci for replication in three independent case-control studies (Europe: 2,804 subjects with melanoma, 7,618 control subjects; United States 1: 1,804 subjects with melanoma, 1,026 control subjects; United States 2: 585 subjects with melanoma, 6,500 control subjects). The combined meta-analysis of all case-control studies identified a new susceptibility locus at 1q21.3 (rs7412746, P = 9.0 × 10(-11), OR in combined replication cohorts of 0.89 (95% CI 0.85-0.95)). We also show evidence suggesting that melanoma associates with 1q42.12 (rs3219090, P = 9.3 × 10(-8)). The associated variants at the 1q21.3 locus span a region with ten genes, and plausible candidate genes for melanoma susceptibility include ARNT and SETDB1. Variants at the 1q21.3 locus do not seem to be associated with human pigmentation or measures of nevus density.     

Genome-wide association study identifies susceptibility loci for open angle glaucoma at TMCO1 and CDKN2B-AS1

We report a genome-wide association study for open-angle glaucoma (OAG) blindness using a discovery cohort of 590 individuals with severe visual field loss (cases) and 3,956 controls. We identified associated loci at TMCO1 (rs4656461[G] odds ratio (OR) = 1.68, P = 6.1 × 10(-10)) and CDKN2B-AS1 (rs4977756[A] OR = 1.50, P = 4.7 × 10(-9)). We replicated these associations in an independent cohort of cases with advanced OAG (rs4656461 P = 0.010; rs4977756 P = 0.042) and two additional cohorts of less severe OAG (rs4656461 combined discovery and replication P = 6.00 × 10(-14), OR = 1.51, 95% CI 1.35-1.68; rs4977756 combined P = 1.35 × 10(-14), OR = 1.39, 95% CI 1.28-1.51). We show retinal expression of genes at both loci in human ocular tissues. We also show that CDKN2A and CDKN2B are upregulated in the retina of a rat model of glaucoma.