Large Panels with Common Factors and Spatial Correlations

This paper considers the statistical analysis of large panel data sets where even after conditioning on common observed effects the cross section units might remain dependently distributed. This could arise when the cross section units are subject to unobserved common effects and/or if there are spill over effects due to spatial or other forms of local dependencies. The paper provides an overview of the literature on cross section dependence, introduces the concepts of time-specific weak and strong cross section dependence and shows that the commonly used spatial models are examples of weak cross section dependence. It is then established that the Common Correlated Effects (CCE) estimator of panel data model with a multifactor error structure, recently advanced by Pesaran (2006), continues to provide consistent estimates of the slope coefficient, even in the presence of spatial error processes. Small sample properties of the CCE estimator under various patterns of cross section dependence, including spatial forms, are investigated by Monte Carlo experiments. Results show that the CCE approach works well in the presence of weak and/or strong cross sectionally correlated errors. We also explore the role of certain characteristics of spatial processes in determining the performance of CCE estimators, such as the form and intensity of spatial dependence, and the sparseness of the spatial weight matrix

Market efficiency today

This CFS Working Paper has been presented at the CFSsymposium "Market Efficiency Today" held in Frankfurt/Main on October 6, 2005. In 2004 the Center for Financial Studies (CFS) in cooperation with the Johann Wolfgang Goethe University, Frankfurt/Main established an international academic prize, which is to be known as The Deutsche Bank Prize in Financial Economics. The prize will honor an internationally renowned researcher who has excelled through influential contributions to research in the fields of finance and money and macroeconomics, and whose work has lead to practice and policy-relevant results. The Deutsche Bank Prize in Financial Economics has been awarded for the first time in October 2005. The prize, sponsored by the Stiftungsfonds Deutsche Bank im Stifterverband für die Deutsche Wissenschaft, carries a cash award of € 50,000. The prize will be awarded every two years and the prize holder will be appointed a "Distinguished Fellow" of the CFS. The role of media partner for the Deutsche Bank Prize in Financial Economics is to be filled by the internationally renowned publication, The Economist and the Handelsblatt, the leading German-language financial and business newspaper

B\"acklund Transformations for First and Second Painlev\'e Hierarchies

We give B\"acklund transformations for first and second Painlev\'e hierarchies. These B\"acklund transformations are generalization of known B\"acklund transformations of the first and second Painlev\'e equations and they relate the considered hierarchies to new hierarchies of Painlev\'e-type equations

Collective Enhancement and Suppression of Excitation Decay in Optical Lattices

We calculate radiative lifetimes of collective electronic excitations of atoms in an infinite one dimensional lattice. The translational symmetry along the lattice restricts the photon wave vector component parallel to the lattice to the exciton wave number and thus the possible emission directions. The resulting radiation damping rate and emission pattern of the exciton strongly deviates from independent atom. For some wave numbers and polarizations the excitons superradiantly decay very fast, while other excitons show zero radiation damping rate and form propagating meta-stable excitations. Such states could be directly coupled via tailored evanescent fields from a nearby fiber.Comment: 4 pages, 7 figure

Industry Concentration and the Cross-section of Stock Returns: Evidence from the UK

In this paper, I examine the relationship between industry concentration and the cross-section of stock returns in the London Stock Exchange between 1985 and 2010. Using Multifactor asset pricing theory, I test whether industry concentration is a new asset pricing factor in addition to conventional risk factors such as beta, firm size, book-to-market ratio, momentum, and leverage. I find that industry concentration is negatively related to the expected stock returns in all Fama and MacBeth cross-sectional regressions. In addition, the negative relationship between industry concentration and expected stock returns remain significantly negative after beta, size, book-to-market, momentum, and leverage are included, while beta is never significant. The results are robust to firm- and industry-level regressions and the formation of firms into 100 size-beta portfolios. The findings indicate that competitive industries earn, on average, higher risk-adjusted returns compared to concentrated industries which is consistent with Schumpeter’s concept of creative destruction.Industry concentration, Stock returns, Multifactor asset pricing theory, Competitive industries, Concentrated industries, Creative destruction, London Stock Exchange

Predictability of Asset Returns and the Efficient Market Hypothesis

This paper is concerned with empirical and theoretical basis of the Efficient Market Hypothesis (EMH). The paper begins with an overview of the statistical properties of asset returns at different frequencies (daily, weekly and monthly), and considers the evidence on return predictability, risk aversion and market efficiency. The paper then focuses on the theoretical foundation of the EMH, and show that market efficiency could co-exit with heterogeneous beliefs and individual irrationality so long as individual errors are cross sectionally weakly dependent in the sense defined by Chudik, Pesaran, and Tosetti (2010). But at times of market euphoria or gloom these individual errors are likely to become cross sectionally strongly dependent and the collective outcome could display significant departures from market efficiency. Market efficiency could be the norm, but it is likely to be punctuated with episodes of bubbles and crashes. The paper also considers if market inefficiencies (assuming that they exist) can be exploited for profit.forecast averaging, heterogeneity of expectations, predictability, market efficiency, equity premium puzzle

Online control of AC/AC converter based SHEPWM technique

Conventional online control of AC/AC converter controlled by the selective harmonic elimination pulse width modulation technique (SHEPWM) is based on storing the offline calculated switching angle values in a form of lookup table. Then the required switching pattern of certain modulation index (M) is searched through the lookup table. This methodology suffers from limited system flexibility. This paper introduces a novel implementation scheme based on real-time calculation of the required SHEPWM switching pattern with linear control of the fundamental voltage component magnitude based on curve fitting technique for the exact switching angle trajectories. The accuracy of the derived polynomials is evaluated by calculating converter performance parameters using the approximated switching angles solutions obtained from the introduced method and the exact switching angles solutions. Detail of the introduced methodology is presented. Simulation and experimental results have been carried out to confirm the validity of the introduced algorithm

Survey Expectations

This paper focuses on survey expectations and discusses their uses for testing and modeling of expectations.Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focuses on average expectationsrather than individual expectations is advanced. Other models of expectations formation, such as the adaptive expectations hypothesis, are briefly discussed. Testable implications of rational and extrapolative models of expectationsare reviewed and the importance of the loss function for the interpretation of the test results is discussed. The paper thenprovides an account of the various surveys of expectations, reviews alternative methods of quantifying the qualitative surveys, and discusses the use of aggregate and individual survey responses in the analysis of expectations and for forecasting