Our research activities in Financial Econometrics, Asset Markets and Macroeconomic Policy span several research topics:

High-Frequency Financial Econometrics

Research includes the modelling and forecasting of multivariate volatility processes. The key areas of focus include:

  • The development of accurate multivariate integrated volatility estimators, using point process methods and price duration data
  • The modelling of local intraday volatility and co-volatility processes
  • Understanding which general and market microstructure factors as well as limit order book effects drive local and integrated volatility processes
  • Estimation of jump variation.

Moreover, research focuses on the understanding of individual trading behaviour at the micro level and the effect of high-frequency news flows on price, volatility, and limit order book processes. The research under this topic is closely linked to the topics market microstructure research, non-linear time series analysis and asset pricing, bubbles, and investments.

Market Microstructure Research

The research focuses on improving our understanding of the microstructure of equity and derivative markets, their interrelations on a micro level and their information content for future prices, volatility, liquidity and jump risks. This research is carried out partly in a collaborative ESRC-FWF funded research project known as ViLa-LOB jointly with Nikolaus Hautsch, University of Vienna and Torben Andersen, Northwestern University.

Within the field of market microstructure, this research looks at establishing microstructure foundations for integrated equity and derivative markets by studying combined limit order books for the first time and we expect to enhance research into high-frequency volatility estimation.

Non-Linear Time Series Analysis

Research advances the application of nonlinear time series models to arbitrage conditions and modelling of exchange rates in the presence of commodity market frictions. In the domain of time series econometrics research activities shed light on the effects of temporal aggregation on estimation methods; the impact of conditional heteroskedasticity on linearity tests and model-specification procedures; and the performance of forecast evaluation measures.

Asset Pricing, Bubbles and Investments

Research activities cover a wide variety of themes in financial markets such as factor investing, mutual fund performance, option pricing and credit risk modelling. They include new methodological contributions to gain a better understanding of the dynamics and risk factors governing financial markets. The research also examines the issue of exuberance in asset prices or, commonly known as, bubbles and develops methods to detect explosive behaviour in asset prices in real time as well as the implementation of early warning diagnosis tests.

One of the research projects analyses the housing market in detail and looks at the three areas below:

  • Changes in the time series properties of house prices to shed light on the timing of the exuberance
  • The synchronisation across countries and regions
  • The drivers of exuberance in general

The centre hosts the UK Housing Market Observatory that includes real-time monitoring of real estate markets and forecasting house prices. Our researchers collaborate with the Globalization and Monetary Policy Institute of the Federal Reserve Bank of Dallas for monitoring international housing markets.

Optimal Monetary and Fiscal Policies

In the context of Dynamic Stochastic General Equilibrium models (DSGE) a major focus of the research are the interactions between the financial sector and the real economy altered by various forms of credit and financial frictions. Key aspects of the research activities investigate the effects of monetary policies, financial regulation, and fiscal policies on the dynamics of the business cycle and welfare.

In the context of dynamic general-equilibrium overlapping-generations models (OLG) recent research evaluates policy changes that involve redistributions both within and across generations in the presence of uninsurable risks. Other important research themes include the association between taxation, bank bailouts and macro-prudential regulations, and on understanding the stabilisation and redistribution properties of monetary and fiscal policies in an economy populated by heterogeneous agents and characterised by inequality.

Banking: Credit Allocation and Financial Stability

Research in this area aims to understand the fundamental mechanisms, institutions, and policies that shape the functioning of banks, their credit policies, and interconnectivity. Key focuses include:

  • The efficiency and productivity of the banking sector
  • The risk-taking in the banking sector and its interaction with monetary policy and other prudential banking regulations (e.g., deposit insurance credit guarantee programs, capital regulation, and other micro- and macro-prudential banking regulations)
  • Systemic risk and financial stability
  • Relationship banking and SME finance
  • Endogeneity problems in econometric studies of the banking sector.

These research objectives are especially important in the post-subprime-crisis era and span the global banking sector with a special emphasis on the UK and European banks. New state-of-the-art tools are proposed and used to address problems of measurement and estimation of bank efficiency, productivity (an elusive concept) as well as stability in the financial sector.