Generalized factor models: a bayesian approach

There is recent interest in the generalization of classical factor models in which the idiosyncratic factors are assumed to be orthogonal and there are identification restrictions on cross-sectional and time dimensions. In this study, we describe and implement a Bayesian approach to generalized factor models. A flexible framework is developed to determine the variations attributed to common and idiosyncratic factors. We also propose a unique methodology to select the (generalized) factor model that best fits a given set of data. Applying the proposed methodology to the simulated data and the foreign exchange rate data, we provide a comparative analysis between the classical and generalized factor models. We find that when there is a shift from classical to generalized, there are significant changes in the estimates of the structures of the covariance and correlation matrices while there are less dramatic changes in the estimates of the factor loadings and the variation attributed to common factors.

Stock market volatility and learning

Introducing bounded rationality in a standard consumption-based asset pricing model with time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of price-dividend ratios, long-horizon return predictability and a risk premium, as in the habit model of Campbell and Cochrane (1999), but for lower risk aversion. This is obtained, even though our learning scheme introduces just one free parameter and we only consider learning schemes that imply small deviations from full rationality. The findings are robust to the learning rule used and other model features. What is key is that agents forecast future stock prices using past information on prices.

A nonlinear threshold model for the dependence of extremes of stationary sequences

One of the main implications of the efficient market hypothesis (EMH) is that expected future returns on financial assets are not predictable if investors are risk neutral. In this paper we argue that financial time series offer more information than that this hypothesis seems to supply. In particular we postulate that runs of very large returns can be predictable for small time periods. In order to prove this we propose a TAR(3,1)-GARCH(1,1) model that is able to describe two different types of extreme events: a first type generated by large uncertainty regimes where runs of extremes are not predictable and a second type where extremes come from isolated dread/joy events. This model is new in the literature in nonlinear processes. Its novelty resides on two features of the model that make it different from previous TAR methodologies. The regimes are motivated by the occurrence of extreme values and the threshold variable is defined by the shock affecting the process in the preceding period. In this way this model is able to uncover dependence and clustering of extremes in high as well as in low volatility periods. This model is tested with data from General Motors stocks prices corresponding to two crises that had a substantial impact in financial markets worldwide; the Black Monday of October 1987 and September 11th, 2001. By analyzing the periods around these crises we find evidence of statistical significance of our model and thereby of predictability of extremes for September 11th but not for Black Monday. These findings support the hypotheses of a big negative event producing runs of negative returns in the first case, and of the burst of a worldwide stock market bubble in the second example. JEL classification: C12; C15; C22; C51 Keywords and Phrases: asymmetries, crises, extreme values, hypothesis testing, leverage effect, nonlinearities, threshold models

Market effects of foreign exchange coordinated intervention

In this article we develop a theoretical microstructure model of coordinated central bank intervention based on asymmetric information. We study the economic implications of coordination on some measures of market quality and show that the model predicts higher volatility and more significant exchange rate changes when central banks coordinate compared to when they intervene unilaterally. Both these predictions are in line with empirical evidence. Keywords: coordinated foreign exchange intervention, market microstructure. JEL Classification: D82, E58, F31, G14

Species distribution models reveal apparent competitive and facilitative effects of a dominant species on the distribution of tundra plants

Abiotic factors are considered strong drivers of species distribution and assemblages. Yet these spatial patterns are also influenced by biotic interactions. Accounting for competitors or facilitators may improve both the fit and the predictive power of species distribution models (SDMs). We investigated the influence of a dominant species, Empetrum nigrum ssp. hermaphroditum, on the distribution of 34 subordinate species in the tundra of northern Norway. We related SDM parameters of those subordinate species to their functional traits and their co-occurrence patterns with E. hermaphroditum across three spatial scales. By combining both approaches, we sought to understand whether these species may be limited by competitive interactions and/or benefit from habitat conditions created by the dominant species. The model fit and predictive power increased for most species when the frequency of occurrence of E. hermaphroditum was included in the SDMs as a predictor. The largest increase was found for species that 1) co-occur most of the time with E. hermaphroditum, both at large (i.e. 750 m) and small spatial scale (i.e. 2 m) or co-occur with E. hermaphroditum at large scale but not at small scale and 2) have particularly low or high leaf dry matter content (LDMC). Species that do not co-occur with E. hermaphroditum at the smallest scale are generally palatable herbaceous species with low LDMC, thus showing a weak ability to tolerate resource depletion that is directly or indirectly induced by E. hermaphroditum. Species with high LDMC, showing a better aptitude to face resource depletion and grazing, are often found in the proximity of E. hermaphroditum. Our results are consistent with previous findings that both competition and facilitation structure plant distribution and assemblages in the Arctic tundra. The functional and co-occurrence approaches used were complementary and provided a deeper understanding of the observed patterns by refinement of the pool of potential direct and indirect ecological effects of E. hermaphroditum on the distribution of subordinate species. Our correlative study would benefit being complemented by experimental approaches.

Physiotherapy practice in the private sector: organizational characteristics and models.

BACKGROUND: Even if a large proportion of physiotherapists work in the private sector worldwide, very little is known of the organizations within which they practice. Such knowledge is important to help understand contexts of practice and how they influence the quality of services and patient outcomes. The purpose of this study was to: 1) describe characteristics of organizations where physiotherapists practice in the private sector, and 2) explore the existence of a taxonomy of organizational models. METHODS: This was a cross-sectional quantitative survey of 236 randomly-selected physiotherapists. Participants completed a purpose-designed questionnaire online or by telephone, covering organizational vision, resources, structures and practices. Organizational characteristics were analyzed descriptively, while organizational models were identified by multiple correspondence analyses. RESULTS: Most organizations were for-profit (93.2%), located in urban areas (91.5%), and within buildings containing multiple businesses/organizations (76.7%). The majority included multiple providers (89.8%) from diverse professions, mainly physiotherapy assistants (68.7%), massage therapists (67.3%) and osteopaths (50.2%). Four organizational models were identified: 1) solo practice, 2) middle-scale multiprovider, 3) large-scale multiprovider and 4) mixed. CONCLUSIONS: The results of this study provide a detailed description of the organizations where physiotherapists practice, and highlight the importance of human resources in differentiating organizational models. Further research examining the influences of these organizational characteristics and models on outcomes such as physiotherapists' professional practices and patient outcomes are needed.

In Search of a theory of debt management

A growing literature integrates theories of debt management into models of optimal fiscal policy. One promising theory argues that the composition of government debt should be chosen so that fluctuations in the market value of debt offset changes in expected future deficits. This complete market approach to debt management is valid even when the government only issues non-contingent bonds. A number of authors conclude from this approach that governments should issue long term debt and invest in short term assets. We argue that the conclusions of this approach are too fragile to serve as a basis for policy recommendations. This is because bonds at different maturities have highly correlated returns, causing the determination of the optimal portfolio to be ill-conditioned. To make this point concrete we examine the implications of this approach to debt management in various models, both analytically and using numerical methods calibrated to the US economy. We find the complete market approach recommends asset positions which are huge multiples of GDP. Introducing persistent shocks or capital accumulation only worsens this problem. Increasing the volatility of interest rates through habits partly reduces the size of these simulations we find no presumption that governments should issue long term debt ? policy recommendations can be easily reversed through small perturbations in the specification of shocks or small variations in the maturity of bonds issued. We further extend the literature by removing the assumption that governments every period costlessly repurchase all outstanding debt. This exacerbates the size of the required positions, worsens their volatility and in some cases produces instability in debt holdings. We conclude that it is very difficult to insulate fiscal policy from shocks by using the complete markets approach to debt management. Given the limited variability of the yield curve using maturities is a poor way to substitute for state contingent debt. The result is the positions recommended by this approach conflict with a number of features that we believe are important in making bond markets incomplete e.g allowing for transaction costs, liquidity effects, etc.. Until these features are all fully incorporated we remain in search of a theory of debt management capable of providing robust policy insights.

Modeling sequencing errors by combining Hidden Markov models.

Among the largest resources for biological sequence data is the large amount of expressed sequence tags (ESTs) available in public and proprietary databases. ESTs provide information on transcripts but for technical reasons they often contain sequencing errors. Therefore, when analyzing EST sequences computationally, such errors must be taken into account. Earlier attempts to model error prone coding regions have shown good performance in detecting and predicting these while correcting sequencing errors using codon usage frequencies. In the research presented here, we improve the detection of translation start and stop sites by integrating a more complex mRNA model with codon usage bias based error correction into one hidden Markov model (HMM), thus generalizing this error correction approach to more complex HMMs. We show that our method maintains the performance in detecting coding sequences.

Effects of selection and drift on G matrix evolution in a heterogeneous environment: a multivariate Qst-Fst Test with the freshwater snail Galba truncatula.

Unraveling the effect of selection vs. drift on the evolution of quantitative traits is commonly achieved by one of two methods. Either one contrasts population differentiation estimates for genetic markers and quantitative traits (the Q(st)-F(st) contrast) or multivariate methods are used to study the covariance between sets of traits. In particular, many studies have focused on the genetic variance-covariance matrix (the G matrix). However, both drift and selection can cause changes in G. To understand their joint effects, we recently combined the two methods into a single test (accompanying article by Martin et al.), which we apply here to a network of 16 natural populations of the freshwater snail Galba truncatula. Using this new neutrality test, extended to hierarchical population structures, we studied the multivariate equivalent of the Q(st)-F(st) contrast for several life-history traits of G. truncatula. We found strong evidence of selection acting on multivariate phenotypes. Selection was homogeneous among populations within each habitat and heterogeneous between habitats. We found that the G matrices were relatively stable within each habitat, with proportionality between the among-populations (D) and the within-populations (G) covariance matrices. The effect of habitat heterogeneity is to break this proportionality because of selection for habitat-dependent optima. Individual-based simulations mimicking our empirical system confirmed that these patterns are expected under the selective regime inferred. We show that homogenizing selection can mimic some effect of drift on the G matrix (G and D almost proportional), but that incorporating information from molecular markers (multivariate Q(st)-F(st)) allows disentangling the two effects.

Caracteritació de models funcionals d'àmfores romanes mitjançant Finite Element Analysis

Projecte de recerca elaborat a partir d’una estada al Laboratory of Archaeometry del National Centre of Scientific Research “Demokritos” d’Atenes, Grècia, entre juny i setembre 2006. Aquest estudi s’emmarca dins d’un context més ampli d’estudi del canvi tecnològic que es documenta en la producció d’àmfores de tipologia romana durant els segles I aC i I dC en els territoris costaners de Catalunya. Una part d’aquest estudi contempla el càlcul de les propietats mecàniques d’aquestes àmfores i la seva avaluació en funció de la tipologia amforal, a partir de l’Anàlisi d’Elements Finits (AEF). L’AEF és una aproximació numèrica que té el seu origen en les ciències d’enginyeria i que ha estat emprada per estimar el comportament mecànic d’un model en termes, per exemple, de deformació i estrès. Així, un objecte, o millor dit el seu model, es dividit en sub-dominis anomenats elements finits, als quals se’ls atribueixen les propietats mecàniques del material en estudi. Aquests elements finits estan connectats formant una xarxa amb constriccions que pot ser definida. En el cas d’aplicar una força determinada a un model, el comportament de l’objecte pot ser estimat mitjançant el conjunt d’equacions lineals que defineixen el rendiment dels elements finits, proporcionant una bona aproximació per a la descripció de la deformació estructural. Així, aquesta simulació per ordinador suposa una important eina per entendre la funcionalitat de ceràmiques arqueològiques. Aquest procediment representa un model quantitatiu per predir el trencament de l’objecte ceràmic quan aquest és sotmès a diferents condicions de pressió. Aquest model ha estat aplicat a diferents tipologies amforals. Els resultats preliminars mostren diferències significatives entre la tipologia pre-romana i les tipologies romanes, així com entre els mateixos dissenys amforals romans, d’importants implicacions arqueològiques.

Three essays on the psychology of investment and financial markets

Préface My thesis consists of three essays where I consider equilibrium asset prices and investment strategies when the market is likely to experience crashes and possibly sharp windfalls. Although each part is written as an independent and self contained article, the papers share a common behavioral approach in representing investors preferences regarding to extremal returns. Investors utility is defined over their relative performance rather than over their final wealth position, a method first proposed by Markowitz (1952b) and by Kahneman and Tversky (1979), that I extend to incorporate preferences over extremal outcomes. With the failure of the traditional expected utility models in reproducing the observed stylized features of financial markets, the Prospect theory of Kahneman and Tversky (1979) offered the first significant alternative to the expected utility paradigm by considering that people focus on gains and losses rather than on final positions. Under this setting, Barberis, Huang, and Santos (2000) and McQueen and Vorkink (2004) were able to build a representative agent optimization model which solution reproduced some of the observed risk premium and excess volatility. The research in behavioral finance is relatively new and its potential still to explore. The three essays composing my thesis propose to use and extend this setting to study investors behavior and investment strategies in a market where crashes and sharp windfalls are likely to occur. In the first paper, the preferences of a representative agent, relative to time varying positive and negative extremal thresholds are modelled and estimated. A new utility function that conciliates between expected utility maximization and tail-related performance measures is proposed. The model estimation shows that the representative agent preferences reveals a significant level of crash aversion and lottery-pursuit. Assuming a single risky asset economy the proposed specification is able to reproduce some of the distributional features exhibited by financial return series. The second part proposes and illustrates a preference-based asset allocation model taking into account investors crash aversion. Using the skewed t distribution, optimal allocations are characterized as a resulting tradeoff between the distribution four moments. The specification highlights the preference for odd moments and the aversion for even moments. Qualitatively, optimal portfolios are analyzed in terms of firm characteristics and in a setting that reflects real-time asset allocation, a systematic over-performance is obtained compared to the aggregate stock market. Finally, in my third article, dynamic option-based investment strategies are derived and illustrated for investors presenting downside loss aversion. The problem is solved in closed form when the stock market exhibits stochastic volatility and jumps. The specification of downside loss averse utility functions allows corresponding terminal wealth profiles to be expressed as options on the stochastic discount factor contingent on the loss aversion level. Therefore dynamic strategies reduce to the replicating portfolio using exchange traded and well selected options, and the risky stock.

Phenotypic consequences of copy number variation: insights from Smith-Magenis and Potocki-Lupski syndrome mouse models.

A large fraction of genome variation between individuals is comprised of submicroscopic copy number variation of genomic DNA segments. We assessed the relative contribution of structural changes and gene dosage alterations on phenotypic outcomes with mouse models of Smith-Magenis and Potocki-Lupski syndromes. We phenotyped mice with 1n (Deletion/+), 2n (+/+), 3n (Duplication/+), and balanced 2n compound heterozygous (Deletion/Duplication) copies of the same region. Parallel to the observations made in humans, such variation in gene copy number was sufficient to generate phenotypic consequences: in a number of cases diametrically opposing phenotypes were associated with gain versus loss of gene content. Surprisingly, some neurobehavioral traits were not rescued by restoration of the normal gene copy number. Transcriptome profiling showed that a highly significant propensity of transcriptional changes map to the engineered interval in the five assessed tissues. A statistically significant overrepresentation of the genes mapping to the entire length of the engineered chromosome was also found in the top-ranked differentially expressed genes in the mice containing rearranged chromosomes, regardless of the nature of the rearrangement, an observation robust across different cell lineages of the central nervous system. Our data indicate that a structural change at a given position of the human genome may affect not only locus and adjacent gene expression but also "genome regulation." Furthermore, structural change can cause the same perturbation in particular pathways regardless of gene dosage. Thus, the presence of a genomic structural change, as well as gene dosage imbalance, contributes to the ultimate phenotype.

Divergent and convergent margins in the north-western Alps - Confrontation to actualistic models

Divergent and convergent margins actualistic models are reviewed and applied to the history of the western Alps. Tethyan rifting history and geometry are analyzed: the northern European margin is considered as an upper plate whereas the southern Apulian margin is a lower plate; the Breche basin is regarded as the former break-away trough; the internal Brianconnais domain represents the northern rift shoulder whilst the more external domains are regarded as the infill of a complex rim basin locally affected by important extension (Valaisan and Vocontain trough). The Schistes lustres and ophiolites of the Tsate nappe are compared to an accretionary prism: the imbrication of this nappe elements is regarded as a direct consequence of the accretionary phenomena already active in early Cretaceous; the Gets/Simme complex could orginate from a more internal part of the accretionary prism. Some eclogitic basements represent the former Apulian margin substratum (Sesia) others (Mont-Rose) are interpreted as the former edge of the European margin. The history of the closing Tethyan domain is analyzed and the remaining problems concerning the cinematics, the presence/absence of a volcanic arc and the eoalpine metamorphism are discussed.