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Estimation of Copula-Based Semiparametric Time Series Models

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  • Yanqin Fan
  • Xiaohong Chen
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    Abstract

    This paper studies the estimation of a class of copula-based semiparametric stationary Markov models. These models are characterized by nonparametric invariant (or marginal) distributions and parametric copula functions that capture the temporal dependence of the processes; the implied transition distributions are all semiparametric. Models in this class are easy to simulate, and can be expressed as semiparametric regression transformation models. One advantage of this copula approach is to separate out the temporal dependence(such as tail dependence) from the marginal behavior (such as fat tailedness) of a time series. We present conditions under which processes generated by models in this class are $\beta $-mixing; naturally, these conditions depend only on the copula specification. Simple estimators of the marginal distribution and the copula parameter are provided, and their asymptotic properties are established under easily verifiable conditions. Estimators of important features of the transition distribution such as the (nonlinear) conditional moments and conditional quantiles are easily obtained from estimators of the marginal distribution and the copula parameter; their $\sqrt{n}-$ consistency and asymptotic normality can be obtained using the Delta method. In addition, the semiparametric conditional quantile estimators are automatically monotonic across quantiles.

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    File URL: http://repec.org/esFEAM04/up.24685.1079973520.pdf
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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 559.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:feam04:559

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    Related research

    Keywords: Copula; Nonlinear Markov models; Semiparametric estimation; Conditional quantile;

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    References

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    4. Xiaohong Chen & Yanqin Fan, 2002. "Evaluating Density Forecasts via the Copula Approach," Vanderbilt University Department of Economics Working Papers 0225, Vanderbilt University Department of Economics, revised Sep 2003.
    5. Yanqin Fan & Xiaohong Chen & Andrew Patton, 2004. "(IAM Series No 003) Simple Tests for Models of Dependence Between Multiple Financial Time Series, with Applications to U.S. Equity Returns and Exchange Rates," FMG Discussion Papers dp483, Financial Markets Group.
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