The next ISEG Research Seminar will take place on the 27th November, with the participation of Yannick Hoga, from the University of Duisberg-Essen, who will present the paper on "Regressions under Adverse Conditions".
The seminar will be held from 13.00 to 14.00 in Lecture Theatre 4 (Quelhas, 4th Floor).
Free admission.
Abstract:
We introduce a new regression method that relates the mean of an outcome variable to covariates, under the "adverse condition" that a distress variable falls in its tail. This allows to tailor classical mean regressions to adverse scenarios, which receive increasing interest in economics and finance, among many others. In the terminology of the systemic risk literature, our method can be interpreted as a regression for the Marginal Expected Shortfall. We propose a two-step procedure to estimate the new models, show consistency and asymptotic normality of the estimator, and propose feasible inference under weak conditions that allow for cross-sectional and time series applications. Simulations verify the accuracy of the asymptotic approximations of the two-step estimator. Two empirical applications show that our regressions under adverse conditions are a valuable tool in such diverse fields as the study of the relation between systemic risk and asset price bubbles, and dissecting macroeconomic growth vulnerabilities into individual components.