Realized Matrix-Exponential Stochastic Volatility with Asymmetry, Long Memory and Spillovers

The paper develops a novel realized matrix-exponential stochastic volatility model of multivariate returns and realized covariances that incorporates asymmetry and long memory (hereafter the RMESV-ALM model). The matrix exponential transformation guarantees the positivedefiniteness of the dynamic covariance matrix. The contribution of the paper ties in with Robert Basmann’s seminal work in terms of the estimation of highly non-linear model specifications (“Causality tests and observationally equivalent representations of econometric models”, Journal of Econometrics, 1988, 39(1-2), 69–104), especially for developing tests for leverage and spillover effects in the covariance dynamics. Efficient importance sampling is used to maximize the likelihood function of RMESV-ALM, and the finite sample properties of the quasi-maximum likelihood estimator of the parameters are analysed. Using high frequency data for three US financial assets, the new model is estimated and evaluated. The forecasting performance of the new model is compared with a novel dynamic realized matrix-exponential conditional covariance model. The volatility and co-volatility spillovers are examined via the news impact curves and the impulse response functions from returns to volatility and co-volatility.

Power spectrum model of visual masking: simulations and empirical data

In the study of the spatial characteristics of the visual channels, the power spectrum model of visual masking is one of the most widely used. When the task is to detect a signal masked by visual noise, this classical model assumes that the signal and the noise are previously processed by a bank of linear channels and that the power of the signal at threshold is proportional to the power of the noise passing through the visual channel that mediates detection. The model also assumes that this visual channel will have the highest ratio of signal power to noise power at its output. According to this, there are masking conditions where the highest signal-to-noise ratio (SNR) occurs in a channel centered in a spatial frequency different from the spatial frequency of the signal (off-frequency looking). Under these conditions the channel mediating detection could vary with the type of noise used in the masking experiment and this could affect the estimation of the shape and the bandwidth of the visual channels. It is generally believed that notched noise, white noise and double bandpass noise prevent off-frequency looking, and high-pass, low-pass and bandpass noises can promote it independently of the channel's shape. In this study, by means of a procedure that finds the channel that maximizes the SNR at its output, we performed numerical simulations using the power spectrum model to study the characteristics of masking caused by six types of one-dimensional noise (white, high-pass, low-pass, bandpass, notched, and double bandpass) for two types of channel's shape (symmetric and asymmetric). Our simulations confirm that (1) high-pass, low-pass, and bandpass noises do not prevent the off-frequency looking, (2) white noise satisfactorily prevents the off-frequency looking independently of the shape and bandwidth of the visual channel, and interestingly we proved for the first time that (3) notched and double bandpass noises prevent off-frequency looking only when the noise cutoffs around the spatial frequency of the signal match the shape of the visual channel (symmetric or asymmetric) involved in the detection. In order to test the explanatory power of the model with empirical data, we performed six visual masking experiments. We show that this model, with only two free parameters, fits the empirical masking data with high precision. Finally, we provide equations of the power spectrum model for six masking noises used in the simulations and in the experiments.