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Continuous Empirical Characteristic Function Estimation of Mixtures of Normal Parameters

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  • Dinghai Xu
  • John Knight

Abstract

This article develops an efficient method for estimating the discrete mixtures of normal family based on the continuous empirical characteristic function (CECF). An iterated estimation procedure based on the closed form objective distance function is proposed to improve the estimation efficiency. The results from the Monte Carlo simulation reveal that the CECF estimator produces good finite sample properties. In particular, it outperforms the discrete type of methods when the maximum likelihood estimation fails to converge. An empirical example is provided for illustrative purposes.

Suggested Citation

  • Dinghai Xu & John Knight, 2011. "Continuous Empirical Characteristic Function Estimation of Mixtures of Normal Parameters," Econometric Reviews, Taylor & Francis Journals, vol. 30(1), pages 25-50.
  • Handle: RePEc:taf:emetrv:v:30:y:2011:i:1:p:25-50 DOI: 10.1080/07474938.2011.520565
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    References listed on IDEAS

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    1. Knight, John L. & Yu, Jun, 2002. "Empirical Characteristic Function In Time Series Estimation," Econometric Theory, Cambridge University Press, pages 691-721.
    2. Jiang, George J & Knight, John L, 2002. "Estimation of Continuous-Time Processes via the Empirical Characteristic Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 198-212, April.
    3. Kien Tran, 1998. "Estimating mixtures of normal distributions via empirical characteristic function," Econometric Reviews, Taylor & Francis Journals, vol. 17(2), pages 167-183.
    4. French, Kenneth R., 1980. "Stock returns and the weekend effect," Journal of Financial Economics, Elsevier, vol. 8(1), pages 55-69, March.
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    Cited by:

    1. Dinghai Xu & John Knight, 2013. "Stochastic volatility model under a discrete mixture-of-normal specification," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(2), pages 216-239, April.
    2. Dinghai Xu, 2009. "An Efficient Estimation for Switching Regression Models: A Monte Carlo Study," Working Papers 0903, University of Waterloo, Department of Economics, revised Apr 2009.

    More about this item

    Keywords

    Empirical characteristic function; Mixtures of normal;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions

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