/* README.TXT */ /********************************************************************************************************/ /**Programs for "Tell-tale tails: A new approach to estimating unique market information shares" **/ by Joachim Grammig and Franziska Julia Peter Journal of Financial and Quantitative Analysis Vol. 48, No. 2, April 2013 Department of Econometrics, Statistics and Empirical Economics University of Tübingen Mohlstrasse 36 D-72074 Tübingen Germany http://www.wiwi.uni-tuebingen.de/cms/index.php?id=881 http://www.facebook.com/tuemetrics Tel: +49 7071 29 76009 September 2, 2011 revised September 3, 2013 /********************************************************************************************************/ Gauss Procedures to replicate results of the mixture model and information share (here for reference entity Ford in the credit risk application) The zip-folder contains: tell_tale_tails.prg (frontend program) estimate.run (does the estimation) boot.run (does the bootstrap) model.src (main source file with procedures) mixture_constraints.src (source file for retsrictions on W) Ford_nomiss.fmt (data first column: CDS data; second column: bond market) readme.txt (this file) /*******************************************************************************************************/ 1. Unzip the folder contents into your home folder (for Windows-GAUSS: Change path to working directory*/ 2. Open Gauss and run tell_tale_tails.prg !Note: the programs make use of the CML (Constraint Maximum Likelihood) library of GAUSS. You need to have CML installed on your computer (not the MT version) ! The program reads in the data (for reference entity "Ford") and calls the estimation and bootstrap programs. It runs by itself. There is nothing else to do, but wait while it runs. Depending on the speed of your computer, the bootstrap may take a while as the model is estimated on simulated data 399 times. On a modern Notebook under Windows7 the program run takes 90 Minutes. If you only want to estimate parameters and information shares and not to bootstrap, include a "stop" command in line 46 in tell_tale_tails.prg tell_tale_tails.prg calls on estimate.run and boot.run. estimate.run starts cml estimation with a diagonal W matrix and uses the converged parameters as starting values for the full model. The diagonal W matrix estimation is equivalent to solving the problem (2.24). These estimation results are also used to compute the Wald statistic (2.25) The program also estimates Hasbrouck information shares. The cointegration vector is fixed to its theoretical values (1,-1) and the cointegration relation is demeaned (to change these settings read the definition of the global variables in estimate.run). estimate.run includes the source files model.src and mixture_constraints.src. The estimated parameters, the Wald-test statistic and other information shares are saved as a .fmt file into the working folder. They are called on by boot.run to conduct the parametric residual bootstrap. The bootstrapped parameters are also saved as .fmt files into the working folder, which are then reloaded into Gauss by tell_tale_tails.prg in order to calculate standard errors and the specification test reults. boot.run needs model.src 3. A summary is printed into the output window: psi_CDS regime variance CDS market psi_Bond regime variance BOND market mix_prob mixture probability gamma w11 1,1 element of W w12 1,2 element of W w21 2,1 element of W w22 2,2 element of W waldpval p-value of the Wald test of Psi_1=Psi_2 (Equation 2.25) Lambdapval p-value of specification test according to Equation (2.26) Haslow lower bound Hasbrouck CDS market information share Hasup upper bound Hasbrouck CDS market information share Hasmid midpoint Hasbrouck CDS market information share IS_T-CDS Tail-dependent CDS market information share according to Equation (2.15) Second column contains standard errors (if available) Note: The bootstrap p-value for the Lambda-test statistic may differ slightly across GAUSS Versions. the one reported in the paper is for GAUSS 6.043 64 bit for Linux The run of tell_tale_tails.prg on this system yields this output: ************************ Estimation Results ************************ psi_CDS 22.850014 4.2756282 psi_BOND 6.4393239 1.2043198 mix_prob 0.68109913 0.034129986 w11 2.6544908 0.19195255 w12 -0.19944481 0.39353791 w21 0.76520006 0.3012286 w22 3.6553715 0.24326498 waldpval 0.32706059 -999 Lambdapv 91.5 -999 Haslow 52.288449 -999 Hasup 80.02756 -999 Hasmid 66.158004 -999 IS_T-CDS 83.424117 0.16361401 /*******************************************************************************************************/