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Theory and Applications of TAR Model with Two Threshold Variables

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  • Chen, Haiqiang
  • Chong, Terence Tai Leung
  • Bai, Jushan

Abstract

A growing body of threshold models has been developed over the past two decades to capture the nonlinear movement of financial time series. Most of these models, however, contain a single threshold variable only. In many empirical applications, models with two or more threshold variables are needed. This paper develops a new threshold autoregressive model which contains two threshold variables. A likelihood ratio test is proposed to determine the number of regimes in the model. The finite-sample performance of the estimators is evaluated and an empirical application is provided.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 54527.

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Date of creation: 01 Jan 2012
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Publication status: Published in Econometric Reviews 31.2(2012): pp. 142-170
Handle: RePEc:pra:mprapa:54527

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Related research

Keywords: Threshold Autoregressive Model; Misspecification; Likelihood Ratio Test; Bootstrapping.;

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References

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  2. Terence Tai-Leung, Chong, 1997. "Structural Change in AR(1) Models," Departmental Working Papers _079, Chinese University of Hong Kong, Department of Economics.
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  8. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
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  10. Gonzalo, Jesus & Pitarakis, Jean-Yves, 2002. "Estimation and model selection based inference in single and multiple threshold models," Journal of Econometrics, Elsevier, vol. 110(2), pages 319-352, October.
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  18. Bruce E. Hansen & Mehmet Caner, 1997. "Threshold Autoregressions with a Unit Root," Boston College Working Papers in Economics 381, Boston College Department of Economics.
  19. Yongmiao Hong & Tae-Hwy Lee, 2003. "Inference on Predictability of Foreign Exchange Rates via Generalized Spectrum and Nonlinear Time Series Models," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1048-1062, November.
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Cited by:
  1. repec:wyi:journl:002214 is not listed on IDEAS
  2. Chen, Haiqiang & Chong, Terence Tai Leung & She, Yingni, 2013. "A Principal Component Approach to Measuring Investor Sentiment in China," MPRA Paper 54150, University Library of Munich, Germany.
  3. Chong, Terence Tai Leung & Yan, Isabel K., 2014. "Estimating and Testing Threshold Regression Models with Multiple Threshold Variables," MPRA Paper 54732, University Library of Munich, Germany.

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