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Maximum Likelihood Estimation of a Unit Root Bilinear Model with an Application to Prices

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Author Info
Daniela Hristova (City University London)
Abstract

We estimate a unit root bilinear process using the Maximum Likelihood method with log-likelihood function constructed by means of the Kalman filter, and evaluate the finite sample properties of this estimator.One hundred and five world-wide price series are tested for unit root bilinearity applying the test suggested by Charemza et al. (forthcoming). Applying the Maximum Likelihood estimator based on the Kalman filter, the null hypothesis of no bilinearity is rejected for 39 out of 105 series at the 5% level of significance. Most of the significant unit root bilinear coefficient estimates are explosive.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 9 (2005)
Issue (Month): 1 ()
Pages: 1199-1199
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Handle: RePEc:bep:sndecm:9:2005:1:1199-1199

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Related research
Keywords: unit root bilinear process non-linear process Kalman filter simulated annealing prices

References listed on IDEAS
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  1. Maravall, Agustin, 1983. "An Application of Nonlinear Time Series Forecasting," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(1), pages 66-74, January.
  2. Hinich, Melvin J & Patterson, Douglas M, 1985. "Evidence of Nonlinearity in Daily Stock Returns," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(1), pages 69-77, January.
  3. Peel, David & Davidson, James, 1998. "A non-linear error correction mechanism based on the bilinear model1," Economics Letters, Elsevier, vol. 58(2), pages 165-170, February. [Downloadable!] (restricted)
  4. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99. [Downloadable!] (restricted)
  5. Scheinkman, Jose A & LeBaron, Blake, 1989. "Nonlinear Dynamics and Stock Returns," Journal of Business, University of Chicago Press, vol. 62(3), pages 311-37, July. [Downloadable!] (restricted)
  6. Charemza, Wojciech W. & Lifshits, Mikhail & Makarova, Svetlana, 2005. "Conditional testing for unit-root bilinearity in financial time series: some theoretical and empirical results," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 63-96, January. [Downloadable!] (restricted)
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  7. Byers, J D & Peel, D A, 1995. "Bilinear Quadratic ARCH and Volatility Spillovers in Inter-war Exchange Rates," Applied Economics Letters, Taylor and Francis Journals, vol. 2(7), pages 215-19, July. [Downloadable!] (restricted)
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