Credit cycle identification: A Markov-switching application

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Business cycle asymmetries: characterisation and testing based on Markov-switching autoregressions

Tests for business cycle asymmetries are developed for Markov-switching autoregressive models. The tests of deepness, steepness, and sharpness are Wald statistics, which have standard asymptotics. For the standard two-regime model of expansions and contractions, deepness is shown to imply sharpness (and vice versa), whereas the process is always nonsteep. Two and three-state models of U.S. GNP growth are used to illustrate the approach, along with models of U.S. investment and consumption growth. The robustness of the tests to model misspecification, and the effects of regime-dependent heteroscedasticity, are investigated.

Switching on the chronometer of history : communism, postcommunism and heritage

The destruction of monuments accompanying the fall of Communism ignited debates about preservation of manifestations of a hated regime. While heritage professionals called for their preservation as ‘historical documents’, many monuments were destroyed or removed. Yampolsky sees anti-Communist iconoclasm as a rejection of the totalitarianism of time embodied in Communist monuments. These ‘intentional monuments’ were intended to ‘negate the march of time and oppose to it the permanence of human action’. They demonstrated the alleged end of history in a classless utopia.

Iconoclastic acts against these monuments involved the crossing of ‘the invisible boundaries of the sacral zone surrounding monuments, switching on the chronometer of history’. In doing so, iconoclasts provide the conditions for reassertion of heritage practices: heritage requires a sense of the flow of time, a difference between past, present and future.

Having restarted the chronometer of history, a society is forced to assess where it stands in relation to its past. Will it continue on a path of ‘wilful forgetting’, or seek to confront the past? The danger of wilful forgetting is the creation of nostalgia. Alternatively, preservation of places of memory helps processing of the past required for movement into the future. ‘One need only consider the way in which Berliners tore down the hated Berlin Wall in the aftermath of 1989’, Fulbrook writes, ‘to understand the desire to rid the landscape of a hated excrescence, a symbol of a rejected political past. But…for those who come after, the effort of historical imagination is all the greater for lack of a topography of experience’.

Heritage preservation can produce a ‘topography of experience’, through which the experience of Communism is examined. Reassertion of a humanistic historical time through heritage practices reveals the arrogant futility of utopian projects seeking to bring history to an end.

Regime dependent causality : equity and credit markets

We apply a Markov switching model to investigate the possibility of an asymmetric causal relationship between the volatility process inferred from the iTraxx CDS options market and the implied volatility from the stock index options market. We find strong evidence that the stock market leads the CDS market and the effect of the implied stock market volatility is more significant during the volatile regime. We also find that a large jump in the stock return, up or down, may indeed be followed by a regime shift.

Ciclos internacionais de negócios : uma análise de mudança de regime markoviano para Brasil, Argentina e Estados Unidos

Este trabalho tem por objetivo promover uma análise dos ciclos econômicos de Brasil, Argentina e Estados Unidos, dando ênfase às mudanças de regimes ocorridas ao longo das flutuações experimentadas por esses países. Estudos recentes sobre ciclos têm argumentado em favor de ciclos internacionais de negócios. Nesse sentido, em especial, o trabalho visa testar a hipótese de um ciclo comum que afetaria ambos os países. A metodologia utilizada é a dos modelos MS-VAR – Markov switching vector autoregressions. Especificações univariadas são estimadas para o período de 1900 a 2000 e os resultados comparados aos fatos estilizados de cada país. Posteriormente um modelo multivariado é formulado para abrigar a hipótese de um ciclo conjunto, visto como mudanças comuns no processo estocástico do crescimento desses países. Os resultados sugerem que as evidências em favor desse ciclo comum são pouco robustas. As correlações contemporâneas estimadas apresentam valores bastante modestos. Em particular, existem significativas diferenças nos ciclos de Brasil, Argentina e Estados Unidos, cada um deles com características próprias e comportamentos singulares.

Improving mutual fund market timing measures: a markov switching approach

Market timing performance of mutual funds is usually evaluated with linear models with dummy variables which allow for the beta coefficient of CAPM to vary across two regimes: bullish and bearish market excess returns. Managers, however, use their predictions of the state of nature to deÞne whether to carry low or high beta portfolios instead of the observed ones. Our approach here is to take this into account and model market timing as a switching regime in a way similar to Hamilton s Markov-switching GNP model. We then build a measure of market timing success and apply it to simulated and real world data.

Price discovery using a regime-sensitive cointegration approach

This work proposes a method to examine variations in the cointegration relation between preferred and common stocks in the Brazilian stock market via Markovian regime switches. It aims on contributing for future works in "pairs trading" and, more specifically, to price discovery, given that, conditional on the state, the system is assumed stationary. This implies there exists a (conditional) moving average representation from which measures of "information share" (IS) could be extracted. For identification purposes, the Markov error correction model is estimated within a Bayesian MCMC framework. Inference and capability of detecting regime changes are shown using a Montecarlo experiment. I also highlight the necessity of modeling financial effects of high frequency data for reliable inference.

Superfícies eletromagnéticas de microondas com controle do regime de trapped-mode

Neste trabalho foram investigadas (FSSs) com ressonância de alto fator de qualidade (fator Q) e independência da polarização para uma onda plana com incidência normal. Estas FSSs são baseadas em um arranjo planar de metalizações sobre um substrato. Um alto fator Q é obtido por meio da excitação do trapped-mode e a independência da polarização, por meio da alta simetria rotacional dos elementos que compõe o arranjo. Para o projeto de FSSs com controle do regime de trapped-mode, foram utilizados substratos feitos de materiais com possibilidade de controle de suas propriedades elétricas ou magnéticas (ferrite magnetizada ou silício ativado oticamente). O arranjo de dois anéis concêntricos em um substrato dielétrico analisado neste trabalho apresenta uma ressonância de trapped-mode com fator Q em torno de 12 e transmitância máxima de 70 %. Com a utilização de um substrato de ferrite magnetizada nesse arranjo, é mostrado que é possível deslocar a frequência de ressonância do trappedmode em torno de 20 %, sem degradação significativa da ressonância de transmisão. Com o emprego de um substrato de silício ativado opticamente, é demonstrado que é possível realizar um chaveamento praticamente completo da banda de transmissão desse arranjo. Para realização das simulações computacionais foram utilizados o método dos momentos no domínio espectral (SDMM) e os programas comerciais Ansoft Designer 5 Planar EM e CST 2009.

Volatility changes caused by the trading system:a Markov switching application

An expanding literature exists to suggest that the trading mechanism can influence the volatility of security returns. This study adds to this literature by examining the impact that the introduction of SETS, on the London Stock Exchange, had on the volatility of security returns. Using a Markov switching regime change model security volatility is categorized as being in a regime of either high or low volatility. It is shown that prior to the introduction of SETS securities tended to be in a low volatility regime. At the time SETS was introduced securities moved to a high volatility regime. This suggests that volatility increased when SETS was introduced.

Bandpass switching in a nonlinear optical loop mirror

We demonstrate bandpass nonlinear switching, using a novel device configuration based on a nonlinear-optical loop mirror and an in-fiber Bragg grating. Self-switching is demonstrated in the soliton regime by use of an asymmetrically arranged in-fiber Bragg grating as a wavelength-selective element. In addition, we adapt the configuration to perform efficient two-wavelength switching.

Soliton switching using cascaded nonlinear-optical loop mirrors

We demonstrate multiple-peaked switching in a nonlinear-optical loop mirror and present an experimental investigation of device cascading in the soliton regime based on a sequence of two independent nonlinear-optical loop mirrors. Cascading leads to an enhanced switching response with sharper switching edges, flattened peaks, and increased interpeak extinction ratios. We observe that pulses emerging from the cascade retain the sech2 temporal profile of a soliton with minimal degradation in the spectral characteristics.

Bandpass switching based on a nonlinear optical loop mirror and an in-fibre grating reflector

Nonlinear optical loop mirror (NOLM) requires breaking the loop symmetry to enable the counter propagating pulses to acquire a differential π phase shift. This is achieved with either an asymmetric fused fibre coupler at the input or by the inclusion of an asymmetrically located gain or loss element within the loop. By introducing a frequency selective loss element, nonlinear switching may be confined to a narrow band of wavelengths or multiple wavelengths. This configuration may have applications in time-wavelength demultiplexing. We demonstrate this technique of bandpass switching in the soliton regime using a fibre-Bragg grating reflector as the wavelength dependent loss.

Bandpass switching in a nonlinear optical loop mirror

A novel device configuration is used to demonstrate wavelength-confined, a bandpass, switching in a nonlinear-optical loop mirror (WOLM). Demonstrated is a self-switching in the soliton regime using a partially reflecting Bragg grating as a wavelength-dependent loss element. Two wavelength operation in which a signal is switched through the use of cross phase modulation, are demonstrated. Observed is the operation of the device confined to wavelengths defined by the grating reflection band.

Soliton switching using cascaded nonlinear-optical loop mirrors

We demonstrate multiple-peaked switching in a nonlinear-optical loop mirror and present an experimental investigation of device cascading in the soliton regime based on a sequence of two independent nonlinear-optical loop mirrors. Cascading leads to an enhanced switching response with sharper switching edges, flattened peaks, and increased interpeak extinction ratios. We observe that pulses emerging from the cascade retain the sech2 temporal profile of a soliton with minimal degradation in the spectral characteristics.