Academic literature on the topic 'Exponential smooth transition autoregressive model'

In this article, we calculate response surface models for a large range of quantiles of the Kapetanios, Shin, and Snell (2003, Journal of Econometrics 112: 359–379) and Kapetanios and Shin (2008, Economics Letters 100: 377–380) tests for the null hypothesis of a unit root against the alternative—that the series of interest follows a globally stationary exponential smooth transition autoregressive process. The response surface models allow estimation of finite-sample critical values and approximate p-values for different combinations of the number of observations, T, and the lag order in the test regression, p. The latter can be either specified by the user or optimally selected using a data-dependent procedure. We present the new commands kssur and ksur and illustrate their use with an empirical example.

Purpose The purpose of this paper is to test and model non-linearities in block price deviations when they are executed outside the bid-ask quotes. The author conducts an empirical analysis on 662,312 transactions that were traded outside the bid-ask quotes in 2014 on the London Stock Exchange. Design/methodology/approach The tests reject the linearity hypothesis and the paper shows that the exponential smooth transition autoregressive model is capable of capturing the non-linear behaviour of block price misalignments. Findings The findings imply that when the deviation of block prices from their quoted value is small (large), trading will occur slowly (rapidly) to restore equilibrium, suggesting that trading costs eliminate continuous trading and that the block trade market is efficient. Originality/value The purpose of this paper is to re-model block price deviations from the bid-ask quotes. The major contribution is that the paper presents new empirical evidence, which explicitly allows for the possibility that block price misalignments from the bid-ask quotes can be characterized by a non-linear mean reverting process. The author demonstrates that the presence of transaction costs induces non-linear adjustments of block trade prices.