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Andrew J. Patton

Zelter Family Distinguished Professor
Economics
Box 90097, Durham, NC 27708-0097
228F Social Sciences, Box 90097, Durham, NC 27708

Selected Publications


Nonstandard Errors

Journal Article The Journal of Finance · June 2024 ABSTRACTIn statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypothe ... Full text Cite

Testing for Unobserved Heterogeneity via k-means Clustering

Journal Article Journal of Business and Economic Statistics · January 1, 2023 Clustering methods such as k-means have found widespread use in a variety of applications. This article proposes a split-sample testing procedure to determine whether a null hypothesis of a single cluster, indicating homogeneity of the data, can be rejecte ... Full text Open Access Cite

From zero to hero: Realized partial (co)variances

Journal Article Journal of Econometrics · December 1, 2022 This paper proposes a generalization of the class of realized semivariance and semicovariance measures introduced by Barndorff-Nielsen et al. (2010) and Bollerslev et al. (2020a) to allow for a finer decomposition of realized (co)variances. The new “realiz ... Full text Open Access Cite

Risk Price Variation: The Missing Half of Empirical Asset Pricing

Journal Article Review of Financial Studies · November 1, 2022 Equal compensation across assets for the same risk exposures is a bedrock of asset pricing theory and empirics. Yet real-world frictions can violate this equality and create apparently high Sharpe ratio opportunities. We develop new methods for asset prici ... Full text Open Access Cite

Realized semibetas: Disentangling “good” and “bad” downside risks

Journal Article Journal of Financial Economics · April 1, 2022 We propose a new decomposition of the traditional market beta into four semibetas that depend on the signed covariation between the market and individual asset returns. We show that semibetas stemming from negative market and negative asset return covariat ... Full text Open Access Cite

Comparing Predictive Accuracy in the Presence of a Loss Function Shape Parameter

Journal Article Journal of Business and Economic Statistics · January 1, 2022 We develop tests for out-of-sample forecast comparisons based on loss functions that contain shape parameters. Examples include comparisons using average utility across a range of values for the level of risk aversion, comparisons of forecast accuracy usin ... Full text Open Access Cite

Comparing Possibly Misspecified Forecasts

Journal Article Journal of Business and Economic Statistics · October 1, 2020 Featured Publication Recent work has emphasized the importance of evaluating estimates of a statistical functional (such as a conditional mean, quantile, or distribution) using a loss function that is consistent for the functional of interest, of which there is an infinite num ... Full text Open Access Cite

Multivariate leverage effects and realized semicovariance GARCH models

Journal Article Journal of Econometrics · August 1, 2020 We propose new asymmetric multivariate volatility models. The models exploit estimates of variances and covariances based on the signs of high-frequency returns, measures known as realized semivariances, semicovariances, and semicorrelations, to allow for ... Full text Open Access Cite

Realized Semibetas: Signs of Things to Come

Journal Article · February 20, 2020 Open Access Cite

Realized Semicovariances

Journal Article Econometrica: journal of the Econometric Society · 2020 Featured Publication We propose a decomposition of the realized covariance matrix into components based on the signs of the underlying high‐frequency returns, and we derive the asymptotic properties of the resulting realized semicovariance measures as the sampling interval goe ... Full text Open Access Cite

Dynamic semiparametric models for expected shortfall (and Value-at-Risk)

Journal Article Journal of Econometrics · August 1, 2019 Featured Publication Expected Shortfall (ES) is the average return on a risky asset conditional on the return being below some quantile of its distribution, namely its Value-at-Risk (VaR). The Basel III Accord, which will be implemented in the years leading up to 2019, places ... Full text Cite

Modeling and forecasting (un)reliable realized covariances for more reliable financial decisions

Journal Article · 2018 We propose a new framework for modeling and forecasting common financial risks based on (un)reliable realized covariance measures constructed from high-frequency intraday data. Our new approach explicitly incorporates the effect of measurement errors and t ... Cite

What You See Is Not What You Get: The Costs of Trading Market Anomalies

Journal Article · October 31, 2017 Featured Publication Open Access Cite

Modeling Dependence in High Dimensions With Factor Copulas

Journal Article Journal of Business and Economic Statistics · January 2, 2017 This article presents flexible new models for the dependence structure, or copula, of economic variables based on a latent factor structure. The proposed models are particularly attractive for relatively high-dimensional applications, involving 50 or more ... Full text Cite

High-dimensional copula-based distributions with mixed frequency data

Journal Article Journal of Econometrics · August 1, 2016 This paper proposes a new model for high-dimensional distributions of asset returns that utilizes mixed frequency data and copulas. The dependence between returns is decomposed into linear and nonlinear components, enabling the use of high frequency data t ... Full text Cite

Exploiting the errors: A simple approach for improved volatility forecasting

Journal Article Journal of Econometrics · May 1, 2016 We propose a new family of easy-to-implement realized volatility based forecasting models. The models exploit the asymptotic theory for high-frequency realized volatility estimation to improve the accuracy of the forecasts. By allowing the parameters of th ... Full text Cite

Exploiting the errors: A simple approach for improved volatility forecasting

Journal Article · 2016 Featured Publication We propose a new family of easy-to-implement realized volatility based forecasting models. The models exploit the asymptotic theory for high-frequency realized volatility estimation to improve the accuracy of the forecasts. By allowing the parameters of th ... Cite

Nonstandard Errors

Journal Article The Journal of Finance · June 2024 ABSTRACTIn statistics, samples are drawn from a population in a data‐generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypothe ... Full text Cite

Testing for Unobserved Heterogeneity via k-means Clustering

Journal Article Journal of Business and Economic Statistics · January 1, 2023 Clustering methods such as k-means have found widespread use in a variety of applications. This article proposes a split-sample testing procedure to determine whether a null hypothesis of a single cluster, indicating homogeneity of the data, can be rejecte ... Full text Open Access Cite

From zero to hero: Realized partial (co)variances

Journal Article Journal of Econometrics · December 1, 2022 This paper proposes a generalization of the class of realized semivariance and semicovariance measures introduced by Barndorff-Nielsen et al. (2010) and Bollerslev et al. (2020a) to allow for a finer decomposition of realized (co)variances. The new “realiz ... Full text Open Access Cite

Risk Price Variation: The Missing Half of Empirical Asset Pricing

Journal Article Review of Financial Studies · November 1, 2022 Equal compensation across assets for the same risk exposures is a bedrock of asset pricing theory and empirics. Yet real-world frictions can violate this equality and create apparently high Sharpe ratio opportunities. We develop new methods for asset prici ... Full text Open Access Cite

Realized semibetas: Disentangling “good” and “bad” downside risks

Journal Article Journal of Financial Economics · April 1, 2022 We propose a new decomposition of the traditional market beta into four semibetas that depend on the signed covariation between the market and individual asset returns. We show that semibetas stemming from negative market and negative asset return covariat ... Full text Open Access Cite

Comparing Predictive Accuracy in the Presence of a Loss Function Shape Parameter

Journal Article Journal of Business and Economic Statistics · January 1, 2022 We develop tests for out-of-sample forecast comparisons based on loss functions that contain shape parameters. Examples include comparisons using average utility across a range of values for the level of risk aversion, comparisons of forecast accuracy usin ... Full text Open Access Cite

Comparing Possibly Misspecified Forecasts

Journal Article Journal of Business and Economic Statistics · October 1, 2020 Featured Publication Recent work has emphasized the importance of evaluating estimates of a statistical functional (such as a conditional mean, quantile, or distribution) using a loss function that is consistent for the functional of interest, of which there is an infinite num ... Full text Open Access Cite

Multivariate leverage effects and realized semicovariance GARCH models

Journal Article Journal of Econometrics · August 1, 2020 We propose new asymmetric multivariate volatility models. The models exploit estimates of variances and covariances based on the signs of high-frequency returns, measures known as realized semivariances, semicovariances, and semicorrelations, to allow for ... Full text Open Access Cite

Realized Semibetas: Signs of Things to Come

Journal Article · February 20, 2020 Open Access Cite

Realized Semicovariances

Journal Article Econometrica: journal of the Econometric Society · 2020 Featured Publication We propose a decomposition of the realized covariance matrix into components based on the signs of the underlying high‐frequency returns, and we derive the asymptotic properties of the resulting realized semicovariance measures as the sampling interval goe ... Full text Open Access Cite

Dynamic semiparametric models for expected shortfall (and Value-at-Risk)

Journal Article Journal of Econometrics · August 1, 2019 Featured Publication Expected Shortfall (ES) is the average return on a risky asset conditional on the return being below some quantile of its distribution, namely its Value-at-Risk (VaR). The Basel III Accord, which will be implemented in the years leading up to 2019, places ... Full text Cite

Modeling and forecasting (un)reliable realized covariances for more reliable financial decisions

Journal Article · 2018 We propose a new framework for modeling and forecasting common financial risks based on (un)reliable realized covariance measures constructed from high-frequency intraday data. Our new approach explicitly incorporates the effect of measurement errors and t ... Cite

What You See Is Not What You Get: The Costs of Trading Market Anomalies

Journal Article · October 31, 2017 Featured Publication Open Access Cite

Modeling Dependence in High Dimensions With Factor Copulas

Journal Article Journal of Business and Economic Statistics · January 2, 2017 This article presents flexible new models for the dependence structure, or copula, of economic variables based on a latent factor structure. The proposed models are particularly attractive for relatively high-dimensional applications, involving 50 or more ... Full text Cite

High-dimensional copula-based distributions with mixed frequency data

Journal Article Journal of Econometrics · August 1, 2016 This paper proposes a new model for high-dimensional distributions of asset returns that utilizes mixed frequency data and copulas. The dependence between returns is decomposed into linear and nonlinear components, enabling the use of high frequency data t ... Full text Cite

Exploiting the errors: A simple approach for improved volatility forecasting

Journal Article Journal of Econometrics · May 1, 2016 We propose a new family of easy-to-implement realized volatility based forecasting models. The models exploit the asymptotic theory for high-frequency realized volatility estimation to improve the accuracy of the forecasts. By allowing the parameters of th ... Full text Cite

Exploiting the errors: A simple approach for improved volatility forecasting

Journal Article · 2016 Featured Publication We propose a new family of easy-to-implement realized volatility based forecasting models. The models exploit the asymptotic theory for high-frequency realized volatility estimation to improve the accuracy of the forecasts. By allowing the parameters of th ... Cite

Does anything beat 5-minute RV? A comparison of realized measures across multiple asset classes

Journal Article Journal of Econometrics · July 1, 2015 We study the accuracy of a variety of estimators of asset price variation constructed from high-frequency data ("realized measures"), and compare them with a simple "realized variance" (RV) estimator. In total, we consider over 400 different estimators, us ... Full text Cite

Good volatility, bad volatility: Signed jumps and the persistence of volatility

Journal Article Review of Economics and Statistics · July 1, 2015 Featured Publication Using estimators of the variation of positive and negative returns (realized semivariances) and high-frequency data for the S&P 500 Index and 105 individual stocks, this paper sheds new light on the predictability of equity price volatility.We showthat fut ... Full text Cite

Change You Can Believe In? Hedge Fund Data Revisions

Journal Article Journal of Finance · June 1, 2015 Featured Publication We analyze the reliability of voluntary disclosures of financial information, focusing on widely-employed publicly-available hedge fund databases. Tracking changes to statements of historical performance recorded between 2007 and 2011, we find that histori ... Full text Cite

Comment

Journal Article Journal of Business and Economic Statistics · January 1, 2015 Full text Cite

Dynamic Copula Models and High Frequency Data

Journal Article Journal of Empirical Finance · January 1, 2015 © 2014 Elsevier B.V.This paper proposes a new class of dynamic copula models for daily asset returns that exploits information from high frequency (intra-daily) data. We augment the generalized autoregressive score (GAS) model of Creal et al. (2013) with h ... Full text Open Access Cite

Copulas in econometrics

Journal Article Annual Review of Economics · January 1, 2014 Copulas are functions that describe the dependence between two or more random variables. This article provides a brief review of copula theory and two areas of economics in which copulas have played important roles: multivariate modeling and partial identi ... Full text Cite

Simulated method of moments estimation for copula-based multivariate models

Journal Article Journal of the American Statistical Association · December 16, 2013 This article considers the estimation of the parameters of a copula via a simulated method of moments (MM) type approach. This approach is attractive when the likelihood of the copula model is not known in closed form, or when the researcher has a set of d ... Full text Cite

Asymptotic Inference about Predictive Accuracy Using High Frequency Data

Scholarly Edition · July 6, 2013 This paper provides a general framework that enables many existing inference methods for predictive accuracy to be used in applications that involve forecasts of latent target variables. Such applications include the forecasting of volatility, correlation, ... Open Access Cite

Daily House Price Indexes: Construction, Modeling, and Longer-Run Predictions

Journal Article Economic Research Initiatives at Duke (ERID) · June 11, 2013 We construct daily house price indexes for ten major U.S. metropolitan areas. Our calculations are based on a comprehensive database of several million residential property transactions and a standard repeat-sales method that closely mimics the procedure u ... Cite

Time-Varying Systemic Risk: Evidence from a Dynamic Copula Model of CDS Spreads

Journal Article Economic Research Initiatives at Duke (ERID) Working Paper · May 23, 2013 This paper proposes a new class of copula-based dynamic models for high dimension conditional distributions, facilitating the estimation of a wide variety of measures of systemic risk. Our proposed models draw on successful ideas from the literature on mod ... Open Access Cite

On the high-frequency dynamics of hedge fund risk exposures

Journal Article Journal of Finance · April 1, 2013 We propose a new method to model hedge fund risk exposures using relatively high-frequency conditioning variables. In a large sample of funds, we find substantial evidence that hedge fund risk exposures vary across and within months, and that capturing wit ... Full text Cite

Copula methods for forecasting multivariate time series

Journal Article · January 1, 2013 Copula-based models provide a great deal of flexibility in modeling multivariate distributions, allowing the researcher to specify the models for the marginal distributions separately from the dependence structure (copula) that links them to form a joint d ... Full text Cite

Does beta move with news? Firm-specific information flows and learning about profitability

Journal Article Review of Financial Studies · September 1, 2012 We investigate whether stock betas vary with the release of firm-specific news. Using daily firm-level betas estimated from intraday prices, we find that betas increase on earnings announcement days and revert to their average levels two to five days later ... Full text Cite

A review of copula models for economic time series

Journal Article Journal of Multivariate Analysis · September 1, 2012 This survey reviews the large and growing literature on copula-based models for economic and financial time series. Copula-based multivariate models allow the researcher to specify the models for the marginal distributions separately from the dependence st ... Full text Cite

Rejoinder

Journal Article Journal of Business and Economic Statistics · January 1, 2012 Full text Cite

Forecast rationality tests based on multi-horizon bounds

Journal Article Journal of Business and Economic Statistics · January 1, 2012 Forecast rationality under squared error loss implies various bounds on second moments of the data across forecast horizons. For example, the mean squared forecast error should be increasing in the horizon, and the mean squared forecast should be decreasin ... Full text Cite

Predictability of output growth and inflation: A multi-horizon survey approach

Journal Article Journal of Business and Economic Statistics · July 1, 2011 We develop an unobserved-components approach to study surveys of forecasts containing multiple forecast horizons. Under the assumption that forecasters optimally update their beliefs about past, current, and future state variables as new information arrive ... Full text Cite

Data-based ranking of realised volatility estimators

Journal Article Journal of Econometrics · April 1, 2011 This paper presents new methods for comparing the accuracy of estimators of the quadratic variation of a price process. I provide conditions under which the relative accuracy of competing estimators can be consistently estimated (as T→∞), and show that for ... Full text Cite

Volatility forecast comparison using imperfect volatility proxies

Journal Article Journal of Econometrics · January 1, 2011 The use of a conditionally unbiased, but imperfect, volatility proxy can lead to undesirable outcomes in standard methods for comparing conditional variance forecasts. We motivate our study with analytical results on the distortions caused by some widely u ... Full text Cite

Monotonicity in asset returns: New tests with applications to the term structure, the CAPM, and portfolio sorts

Journal Article Journal of Financial Economics · December 1, 2010 Many theories in finance imply monotonic patterns in expected returns and other financial variables. The liquidity preference hypothesis predicts higher expected returns for bonds with longer times to maturity; the Capital Asset Pricing Model (CAPM) implie ... Full text Cite

Why do forecasters disagree? Lessons from the term structure of cross-sectional dispersion

Journal Article Journal of Monetary Economics · October 1, 2010 Key sources of disagreement among economic forecasters are identified by using data on cross-sectional dispersion in forecasters' long- and short-run predictions of macroeconomic variables. Dispersion among forecasters is highest at long horizons where pri ... Full text Cite

On the Dynamics of Hedge Fund Risk Exposures

Journal Article · April 2, 2010 Cite

Optimal combinations of realised volatility estimators

Journal Article International Journal of Forecasting · 2009 Recent advances in financial econometrics have led to the development of new estimators of asset price variability using frequently-sampled price data, known as "realised volatility estimators" or simply "realised measures". These estimators rely on a vari ... Full text Cite

Correction to automatic block-length selection for the dependent bootstrap by D. Politis and H. White

Journal Article Econometric Reviews · 2009 A correction on the optimal block size algorithms of Politis and White (2004) is given following a correction of Lahiri's (Lahiri 1999) theoretical results by Nordman (2008). ... Full text Cite

Are "market neutral" hedge funds really market neutral?

Journal Article Review of Financial Studies · 2009 Using a variety of different definitions of "neutrality," this study presents significant evidence against the neutrality to market risk of hedge funds in a range of style categories. I generalize standard definitions of "market neutrality," and propose fi ... Full text Cite

The Resolution of Macroeconomic Uncertainty: Evidence from Survey Forecast

Journal Article CREATES Research Paper · September 19, 2008 Cite

Testing forecast optimality under unknown loss

Journal Article Journal of the American Statistical Association · 2007 Empirical tests of forecast optimality have traditionally been conducted under the assumption of mean squared error loss or some other known loss function. In this article we establish new testable properties that hold when the forecaster's loss function i ... Full text Cite

Properties of optimal forecasts under asymmetric loss and nonlinearity

Journal Article Journal of Econometrics · 2007 Evaluation of forecast optimality in economics and finance has almost exclusively been conducted under the assumption of mean squared error loss. Under this loss function optimal forecasts should be unbiased and forecast errors serially uncorrelated at the ... Full text Cite

What good is a volatility model?

Journal Article Forecasting Volatility in the Financial Markets · 2007 A volatility model must be able to forecast volatility. This is the central requirement in almost all financial applications. There are two general classes of volatility models in widespread use. The first type formulates the conditional variance directly ... Full text Cite

Common factors in conditional distributions for bivariate time series

Journal Article Journal of Econometrics · 2006 A definition for a common factor for bivariate time series is suggested by considering the decomposition of the conditional density into the product of the marginals and the copula, with the conditioning variable being a common factor if it does not direct ... Full text Cite

Estimation of multivariate models for time series of possibly different lengths

Journal Article Journal of Applied Econometrics · 2006 We consider the problem of estimating parametric multivariate density models when unequal amounts of data are available on each variable. We focus in particular on the case that the unknown parameter vector may be partitioned into elements relating only to ... Full text Cite

Modelling asymmetric exchange rate dependence

Journal Article International Economic Review · 2006 We test for asymmetry in a model of the dependence between the Deutsche mark and the yen, in the sense that a different degree of correlation is exhibited during joint appreciations against the U.S. dollar versus during joint depreciations. We consider an ... Full text Cite

Testable Implications of Forecast Optimality

Journal Article · January 2005 Cite

Testable Implications of Forecast Optimality

Journal Article · November 2004 Cite

Impacts of trades in an error-correction model of quote prices

Journal Article Journal of Financial Markets · 2004 In this paper we analyze and interpret the quote price dynamics of 100 NYSE stocks stratified by trade frequency. We specify an error-correction model for the log difference of the bid and the ask price with the spread acting as the error-correction term, ... Full text Cite

Properties of Optimal Forecasts

Journal Article · August 2003 Cite