Capturing the Impact of Latent Industry-Wide Shocks with Dynamic Panel Model
AbstractExpanding the panel model of Pesaran (2006) and Bai (2009), we propose a dynamic panel specification with Bayesian approach to capture the impact of unobservable industry-wide shocks to stock price movements. We employ fundamental accounting information to control company specific shocks and equity market index to capture market wide common shocks. Our model is designed to resolve the potential multicollinearity problem that is known to exist when the industry factors are considered by extracting the industry-wide shocks using Bayesian method.
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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 347.
Length: 28 pages
Date of creation: 01 Mar 2014
Date of revision:
Common Factor Structural Error; Common Shocks; Stock Price Movements; Accounting Fundamentals; Bayesian Gibbs Sampler;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-05-09 (All new papers)
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