Getting the ROC into Sync

33 Pages Posted: 14 Jan 2022

See all articles by Liu Yang

Liu Yang

Nanjing University - School of Business; State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

Kajal Lahiri

State University of New York (SUNY) at Albany

Adrian Pagan

University of Sydney; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: January 13, 2022

Abstract

Judging the conformity of binary events in macroeconomics and finance has often been done with indices that measure synchronization. In recent years, the use of Receiver Operating Characteristic (ROC) curve has become popular for this task. This paper shows that the ROC and synchronization approaches are closely related, and each can be represented as a weighted average of correlation coefficients between a set of binary indicators and the target event. An advantage of such a representation is that inferences on the degree of conformity can be made robust to serial dependence in the underlying series in the standard framework of a linear regression model. Such serial correlation is common in macroeconomic and financial data.

Keywords: Receiver operating characteristic curve, Synchronization, Correlation, Economic recession, Serial dependence.

JEL Classification: C14, C52, C53, E37

Suggested Citation

Yang, Liu and Yang, Liu and Lahiri, Kajal and Pagan, Adrian, Getting the ROC into Sync (January 13, 2022). Available at SSRN: https://ssrn.com/abstract=4007695 or http://dx.doi.org/10.2139/ssrn.4007695

Liu Yang

Nanjing University - School of Business

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

1400 Washington Ave
Albany, NY 12222
United States
518-442-4735 (Phone)
518-442-4736 (Fax)

HOME PAGE: http://www.albany.edu/economics/

Kajal Lahiri

State University of New York (SUNY) at Albany ( email )

Department of Economics
1400 Washington Avenue
Albany, NY 12222
United States
518-442 4758 (Phone)
518-442 4736 (Fax)

HOME PAGE: http://www.albany.edu/~klahiri

Adrian Pagan (Contact Author)

University of Sydney ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

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