Essays on the Modeling and Prediction of Volatility and Higher Moments of Stock Returns (summary section only)

One of the most fundamental and widely accepted ideas in finance is that investors are compensated through higher returns for taking on non-diversifiable risk. Hence the quantification, modeling and prediction of risk have been, and still are one of the most prolific research areas in financial economics. It was recognized early on that there are predictable patterns in the variance of speculative prices. Later research has shown that there may also be systematic variation in the skewness and kurtosis of financial returns. Lacking in the literature so far, is an out-of-sample forecast evaluation of the potential benefits of these new more complicated models with time-varying higher moments. Such an evaluation is the topic of this dissertation. Essay 1 investigates the forecast performance of the GARCH (1,1) model when estimated with 9 different error distributions on Standard and Poor’s 500 Index Future returns. By utilizing the theory of realized variance to construct an appropriate ex post measure of variance from intra-day data it is shown that allowing for a leptokurtic error distribution leads to significant improvements in variance forecasts compared to using the normal distribution. This result holds for daily, weekly as well as monthly forecast horizons. It is also found that allowing for skewness and time variation in the higher moments of the distribution does not further improve forecasts. In Essay 2, by using 20 years of daily Standard and Poor 500 index returns, it is found that density forecasts are much improved by allowing for constant excess kurtosis but not improved by allowing for skewness. By allowing the kurtosis and skewness to be time varying the density forecasts are not further improved but on the contrary made slightly worse. In Essay 3 a new model incorporating conditional variance, skewness and kurtosis based on the Normal Inverse Gaussian (NIG) distribution is proposed. The new model and two previously used NIG models are evaluated by their Value at Risk (VaR) forecasts on a long series of daily Standard and Poor’s 500 returns. The results show that only the new model produces satisfactory VaR forecasts for both 1% and 5% VaR Taken together the results of the thesis show that kurtosis appears not to exhibit predictable time variation, whereas there is found some predictability in the skewness. However, the dynamic properties of the skewness are not completely captured by any of the models.

Hyperfine effects in the nuclear magnetic resonance of paramagnetic molecules

Paramagnetic, or open-shell, systems are often encountered in the context of metalloproteins, and they are also an essential part of molecular magnets. Nuclear magnetic resonance (NMR) spectroscopy is a powerful tool for chemical structure elucidation, but for paramagnetic molecules it is substantially more complicated than in the diamagnetic case. Before the present work, the theory of NMR of paramagnetic molecules was limited to spin-1/2 systems and it did not include relativistic corrections to the hyperfine effects. It also was not systematically expandable. --- The theory was first expanded by including hyperfine contributions up to the fourth power in the fine structure constant α. It was then reformulated and its scope widened to allow any spin state in any spatial symmetry. This involved including zero-field splitting effects. In both stages the theory was implemented into a separate analysis program. The different levels of theory were tested by demonstrative density functional calculations on molecules selected to showcase the relative strength of new NMR shielding terms. The theory was also tested in a joint experimental and computational effort to confirm assignment of 11 B signals. The new terms were found to be significant and comparable with the terms in the earlier levels of theory. The leading-order magnetic-field dependence of shielding in paramagnetic systems was formulated. The theory is now systematically expandable, allowing for higher-order field dependence and relativistic contributions. The prevailing experimental view of pseudocontact shift was found to be significantly incomplete, as it only includes specific geometric dependence, which is not present in most of the new terms introduced here. The computational uncertainty in density functional calculations of the Fermi contact hyperfine constant and zero-field splitting tensor sets a limit for quantitative prediction of paramagnetic shielding for now.