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Nonparametric estimation of time-varying covariance matrix in a slowly changing vector random walk model

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Author Info
Feng, Yuanhua
Yu, Keming

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Abstract

A new multivariate random walk model with slowly changing parameters is introduced and investigated in detail. Nonparametric estimation of local covariance matrix is proposed. The asymptotic distributions, including asymptotic biases, variances and covariances of the proposed estimators are obtained. The properties of the estimated value of a weighted sum of individual nonparametric estimators are also studied in detail. The integrated effect of the estimation errors from the estimation for the difference series to the integrated processes is derived. Practical relevance of the model and estimation is illustrated by application to several foreign exchange rates.

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File URL: http://mpra.ub.uni-muenchen.de/1597/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1597.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:1597

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Related research
Keywords: Multivariate time series slowly changing vector random walk local covariance matrix kernel estimation asymptotic properties forecasting.

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
G00 - Financial Economics - - General - - - General
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods

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  1. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February. [Downloadable!] (restricted)
  2. W. H"Ardle & A. Tsybakov & L. Yang, . "Nonparametric Vector Autoregression," Sonderforschungsbereich 373 1996-61, Humboldt Universitaet Berlin.
  3. Yuanhua Feng, 2002. "Simultaneously Modelling Conditional Heteroskedasticity and Scale Change," CoFE Discussion Paper 02-12, Center of Finance and Econometrics, University of Konstanz. [Downloadable!]
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  4. Ait-Sahalia, Yacine, 1996. "Nonparametric Pricing of Interest Rate Derivative Securities," Econometrica, Econometric Society, vol. 64(3), pages 527-60, May. [Downloadable!] (restricted)
    Other versions:
  5. Beran, Jan & Feng, Yuanhua, 2002. "SEMIFAR models--a semiparametric approach to modelling trends, long-range dependence and nonstationarity," Computational Statistics & Data Analysis, Elsevier, vol. 40(2), pages 393-419, August. [Downloadable!] (restricted)
  6. Harvey, Andrew & Ruiz, Esther & Shephard, Neil, 1994. "Multivariate Stochastic Variance Models," Review of Economic Studies, Blackwell Publishing, vol. 61(2), pages 247-64, April. [Downloadable!] (restricted)
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