Canada Mortgage and Housing Corporation

ABSTRACTWe introduce a novel class of stochastic volatility models, which can utilize and relate many high‐frequency realized volatility (RV) measures to latent volatility. Instrumental variable methods provide a unified framework for estimation and testing. We study parameter inference problems in the proposed framework with nonstationary stochastic volatility and exogenous predictors in the latent volatility process. Identification‐robust methods are developed for a joint hypothesis involving the volatility persistence parameter and the autocorrelation parameter of the composite error (or the noise ratio). For inference about the volatility persistence parameter, projection techniques are applied. The proposed tests include Anderson‐Rubin‐type tests and their point‐optimal versions. For distributional theory, we provide finite‐sample tests and confidence sets for Gaussian errors, establish exact Monte Carlo test procedures for non‐Gaussian errors (possibly heavy‐tailed), and show asymptotic validity under weaker assumptions. Simulation results show that the proposed tests outperform the asymptotic test regarding size and exhibit excellent power in empirically realistic settings. The proposed inference methods are applied to IBM's price and option data (2009–2013). We consider 175 different instruments (IVs) spanning 22 classes and analyze their ability to describe the low‐frequency volatility. IVs are compared based on the average length of the proposed identification‐robust confidence intervals. The superior instrument set mostly comprises 5‐min HF realized measures, and these IVs produce confidence sets which show that the volatility process is nearly unit‐root. In addition, we find RVs with higher frequency yield wider confidence intervals than RVs with slightly lower frequency, indicating that these confidence intervals adjust to absorb market microstructure noise. Furthermore, when we consider irrelevant or weak IVs (jumps and signed jumps), the proposed tests produce unbounded confidence intervals. We also find that both RV and BV measures produce almost identical confidence intervals across all 14 subclasses, confirming that our methodology is robust in the presence of jumps. Finally, although jumps contain little information regarding the low‐frequency volatility, we find evidence that there may be a nonlinear relationship between jumps and low‐frequency volatility.

Drastic shifts in prices and housing market trends in recent years, representing shocks to the housing system, have led many residential developers to pause or cancel their projects. In the already heated housing markets of the Greater Toronto Area (GTA), these supply frictions can have ramifications for affordability. Our study formulates a standardized “proforma” model of the profitability of a hypothetical condominium project in the city of Toronto, Canada, scheduled between 2019 to 2023, to explore the combined effect of developers’ price expectations and market volatility on developers’ decisions. Using the proposed proforma, we first identify the key drivers of development decisions. We then evaluate the impact of the expectation formation of key factors influencing perceived development profitability, including construction costs, sales prices, and interest rates, on the financial feasibility of potential developments. The results highlight that boundedly rational expectations can cause variations in profitability perceptions and potentially reverse development decisions in volatile market conditions. Our results highlight the sources of risk and uncertainty in development decisions, facilitating the recognition of possible solutions to mitigate these risks and increase affordable housing supplies. The proposed model can also enhance the realism of decision models in agent-based representations of land and housing markets.

ABSTRACTThe author documents analysts' reliance on the company-issued guidance range as a frame of reference in making their EPS forecasts. Analysts who use the guidance range as a reference may limit information diffusion to market participants by keeping their true beliefs private. The author therefore analyzes the stock market's reaction to analyst forecasting decisions, and finds that investors overreact to forecasts that are exactly equal to the minimum or maximum of the guidance range, but do not overreact to other types of forecasts. The evidence presented is most consistent with overreaction driven by overconfident investors who trade too much in the face of information uncertainty.

Background and aims Important knowledge gaps remain concerning health effects of ventilation.We measured the impact of increased ventilation rates on concentrations of indoor air contaminants and on the frequency of asthma symptoms. Results on environmental and health aspects are presented in two separate abstracts. Methods A randomized controlled study was conducted with 83 asthmatic children (ages 3 to 12) living in homes with a ventilation rate < 0,3 h-1. During years 1 (pre-intervention) and 2 (post-intervention), asthma symptoms were measured via a daily diary and ISAAC questionnaire. Children were randomized after year 1 (43 I; 40 C) and the ventilation rate was increased in the homes of the intervention group by optimization or new installation. The primary health outcome was the mean number of days with symptoms per 14 days during the heating season. The proportion of children with wheezing was also compared. Mixed linear models with repeated measures were used to assess the difference in outcome between the intervention and control groups, and the impact of the reduction of contaminants on symptoms in the intervention group. Results From year 1 to year 2, the mean number of days with symptoms decreased from 6,4±0,8 to 5,0±0,8 in the intervention group and from 5,4±0,8 to 4,5±0,8 in the control group (p=0,58). The proportion of children with wheezing episodes decreased from 77,4%±0,10 to 42,5%±0,10 in the intervention group compared to 83,6%±0,10 to 70,8%±0,10 in the control group (p=0,03). Estimated decrease of the prevalence of wheezing related to a 50% reduction of formaldehyde concentration was 6,2% ±0,03 (p=0,04). Conclusions Increased ventilation rate had no significant impact on the frequency of asthma symptoms during the heating season. However, it was associated with a significant decrease of the prevalence of wheezing in the intervention group on a whole year basis. Reduction of formaldehyde concentrations may explain the decrease of wheezing.