Costationarity of Locally Stationary Time Series
Given more than one locally stationary (LS) time series, this article describes a method to discover time-varying linear combinations of the LS series that are stationary. Systems for which this can occur are called costationary, and the associated time-varying linear combinations are called costationary vectors. Costationary systems are interesting for a number of reasons. The costationary vectors shed light on the nature and strength of a potentially interesting relationship between the LS series. The derived stationary series, which is the time-varying combination of the LS series, is often of independent interest and use. The article discusses why a spectral approach is often preferred to the time-domain and why costationary vectors need to be complexity constrained, and it also demonstrates an interesting error-correction formulae which shows how costationary systems must evolve to maintain stationarity in response to system shocks. We illustrate our methodology with two examples: one from asset allocation in financial portfolio construction and the other which mitigates intermittency in wind power management. In the former, a stationary synthetic asset is constructed using market index data and is shown to have superior Sharpe ratios to two established portfolio selectors. In the latter, power outputs from separate wind series are dynamically combined to provide a power output which has smaller intermittency than the individual inputs.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 2 (2011)
Issue (Month): 2 (January)
|Contact details of provider:|| Web page: http://www.degruyter.com|
|Order Information:||Web: http://www.degruyter.com/view/j/jtse|
When requesting a correction, please mention this item's handle: RePEc:bpj:jtsmet:v:2:y:2011:i:2:n:1. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.