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dc.contributor.authorLinton, O. B.
dc.contributor.authorTang, H.
dc.contributor.authorWu, J.
dc.date.accessioned2022-07-05T16:43:16Z
dc.date.available2022-07-05T16:43:16Z
dc.date.issued2022-06-15
dc.identifier.otherCWPE2237
dc.identifier.otherJIWP2214
dc.identifier.urihttps://www.repository.cam.ac.uk/handle/1810/338815
dc.description.abstractMost stock markets are open for 6-8 hours per trading day. The Asian, European and American stock markets are separated in time by time-zone differences. We propose a statistical dynamic factor model for a large number of daily returns across multiple time zones. Our model has a common global factor as well as continental factors. Under a mild fixed-signs assumption, our model is identified and has a structural interpretation. We propose several estimators of the model: the maximum likelihood estimator-one day (MLE-one day), the quasi-maximum likelihood estimator (QMLE), an improved estimator from QMLE (QMLE-md), the QMLEres (similar to MLE-one day), and a Bayesian estimator (Gibbs sampling). We establish consistency, the rates of convergence and the asymptotic distributions of the QMLE and the QMLE-md. We next provide a heuristic procedure for conducting inference for the MLE-one day and the QMLE-res. Monte Carlo simulations reveal that the MLE-one day, the QMLE-res and the QMLE-md work well. We then apply our model to two real data sets: (1) equity portfolio returns from Japan, Europe and the US; (2) MSCI equity indices of 41 developed and emerging markets. Some new insights about linkages among different markets are drawn.
dc.publisherFaculty of Economics, University of Cambridge
dc.relation.ispartofseriesCambridge Working Papers in Economics
dc.relation.ispartofseriesJaneway Institute Working Paper Series
dc.rightsAll Rights Reserved
dc.rights.urihttps://www.rioxx.net/licenses/all-rights-reserved/
dc.subjectDaily Global Stock Market Returns
dc.subjectTime-Zone Differences
dc.subjectStructural Dynamic Factor Model
dc.subjectQuasi Maximum Likelihood
dc.subjectMinimum Distance
dc.subjectExpectation Maximization Algorithm
dc.titleA Structural Dynamic Factor Model for Daily Global Stock Market Returns
dc.typeWorking Paper
dc.identifier.doi10.17863/CAM.86222


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