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Indirect Estimation Of Conditionally Heteroskedastic Factor Models

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Author Info
Enrique Sentana ()
Giorgio Calzolari ()
Gabriele Fiorentini () (CEMFI, Centro de Estudios Monetarios y Financieros)

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Abstract

We derive indirect estimators of multivariate conditionally heteroskedastic factor models in which the volatilities of the latent factors depend on their past values. Specifically, we calibrate the analytical score of a Kalman-filter approximation, taking into account the inequality constraints on the auxiliary model parameters. We also study the determinants of the biases in the parameters of this approximation, and its quality. Moreover, we propose sequential indirect estimators that can handle models with large cross-sectional dimensions. Finally, we analyse the small sample behaviour of our indirect estimators and the approximate maximum likelihood procedures through an extensive Monte Carlo experiment.

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Paper provided by CEMFI in its series Working Papers with number wp2004_0409.

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Date of creation: Apr 2004
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Handle: RePEc:cmf:wpaper:wp2004_0409

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Related research
Keywords: ARCH; inequality constraints; Kalman filter; sequential estimators; simulation estimators; volatility.;

Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. King, Mervyn & Sentana, Enrique & Wadhwani, Sushil, 1994. "Volatility and Links between National Stock Markets," Econometrica, Econometric Society, vol. 62(4), pages 901-33, July. [Downloadable!] (restricted)
    Other versions:
  4. Enrique Sentana, 2000. "The Likelihood Function of Conditionally Heteroskedastic Factor Models," Annales d'Economie et de Statistique, ADRES, issue 58, pages 02, Avril-Jui. [Downloadable!]
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  6. Drost, Feike C & Nijman, Theo E, 1993. "Temporal Aggregation of GARCH Processes," Econometrica, Econometric Society, vol. 61(4), pages 909-27, July. [Downloadable!] (restricted)
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  7. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De. [Downloadable!] (restricted)
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  12. Giorgio Calzolari & Gabriele Fiorentini & Enrique Sentana, 2004. "Constrained Indirect Estimation," Review of Economic Studies, Blackwell Publishing, vol. 71(4), pages 945-973, October. [Downloadable!] (restricted)
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  16. Monica Billio & Alain Monfort, 2003. "Kernel-Based Indirect Inference," Journal of Financial Econometrics, Oxford University Press, vol. 1(3), pages 297-326.
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  20. Sentana, Enrique, 2004. "Factor representing portfolios in large asset markets," Journal of Econometrics, Elsevier, vol. 119(2), pages 257-289, April. [Downloadable!] (restricted)
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  21. Giorgio Calzolari & Francesca Di Iorio & Gabriele Fiorentini, 1998. "Control variates for variance reduction in indirect inference: Interest rate models in continuous time," Econometrics Journal, Royal Economic Society, vol. 1(Conferenc), pages C100-C112.
    Other versions:
  22. Tim Bollerslev & Jeffrey Wooldridge, 1992. "Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariances," Econometric Reviews, Taylor and Francis Journals, vol. 11(2), pages 143-172. [Downloadable!] (restricted)
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  25. Neil Shephard & Gabriele Fiorentini & Enrique Sentana, 2003. "Likelihood-based estimation of latent generalised ARCH structures," FMG Discussion Papers dp453, Financial Markets Group. [Downloadable!] (restricted)
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  26. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
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  31. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
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    Other versions:
  34. Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI. [Downloadable!]
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  2. Gabriele Fiorentini & Enrique Sentana & Neil Shephard, 2004. "Likelihood-based estimation of latent generalised ARCH structures," OFRC Working Papers Series 2004fe02, Oxford Financial Research Centre. [Downloadable!]
    Other versions:
  3. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms In The U.S.: A Boon For The Income Poor," Working Papers wp2006_0611, CEMFI. [Downloadable!]
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  4. Carmen Broto & Esther Ruiz, 2002. "Estimation Methods For Stochastic Volatility Models: A Survey," Statistics and Econometrics Working Papers ws025414, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
    Other versions:
  5. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI. [Downloadable!]
    Other versions:
  6. Klaassen, F., 1999. "Have exchange rates become more closely tied? : evidence from a new multivariate garch model," Discussion Paper 10, Tilburg University, Center for Economic Research. [Downloadable!]
  7. Aleix Calveras & Juan-José Ganuza & Gerard Llobet, 2005. "Regulation And Opportunism: How Much Activism Do We Need?," Working Papers wp2005_0508, CEMFI. [Downloadable!]
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  8. Beatriz Dominguez & Juan-José Ganuza & Gerard Llobet, 2006. "R&D In The Pharmaceutical Industry: A World Of Small Innovation," Working Papers wp2006_0601, CEMFI. [Downloadable!]
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