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Likelihood-Based Estimation Of Latent Generalised Arch Structures

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  • Gabriele Fiorentini

    ()
    (Universidad de Alicante)

  • Enrique Sentana

    (CEMFI)

  • Neil Shephard

    (Nuffield College)

Abstract

GARCH models are commonly used as latent processes in econometrics, financial economics and macroeconomics. Yet no exact likelihood analysis of these models has been provided so far. In this paper we outline the issues and suggest a Markov chain Monte Carlo algorithm which allows the calculation of a classical estimator via the simulated EM algorithm or a Bayesian solution in O(T) computational operations, where T denotes the sample size. We assess the performance of our proposed algorithm in the context of both artificial examples and an empirical application to 26 UK sectorial stock returns, and compare it to existing approximate solutions.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2003-06.pdf
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-06.

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Length: 42 pages
Date of creation: Feb 2003
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-06

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Keywords: Bayesian inference; Dynamic Heteroskedasticity; Factor models;

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References

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