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Effects of Marginal Specifcations on Copula Estimation

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  • Azam, Kazim

Abstract

This paper studies the effect of marginal distributions on a copula, in the case of mixed discretecontinuous random variables. The existing literature has proposed various methods to deal with mixed marginals: this paper is the first to quantify their effect in a unified Bayesian setting. Using order statistics based information for the marginals, as proposed by Hoff (2007), we find that in small samples the bias and mean square error are at least half in size as compared to those of empirical or misspecified marginal distributions. The difference in the bias and mean square error enlarges with increasing sample size, especially for low count discrete variables. We employ the order statistics method on firm-level patents data, containing both discrete and continuous random variables, and consistently estimate their correlation.

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  • Azam, Kazim, 2014. "Effects of Marginal Specifcations on Copula Estimation," Economic Research Papers 270230, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:270230
    DOI: 10.22004/ag.econ.270230
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    1. Cockburn, Iain & Griliches, Zvi, 1988. "Industry Effects and Appropriability Measures in the Stock Market's Valuation of R&D and Patents," American Economic Review, American Economic Association, vol. 78(2), pages 419-423, May.
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    3. Blundell, Richard & Griffith, Rachel & Windmeijer, Frank, 2002. "Individual effects and dynamics in count data models," Journal of Econometrics, Elsevier, vol. 108(1), pages 113-131, May.
    4. Eckel, Carsten & Iacovone, Leonardo & Javorcik, Beata & Neary, J. Peter, 2015. "Multi-product firms at home and away: Cost- versus quality-based competence," Journal of International Economics, Elsevier, vol. 95(2), pages 216-232.
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    7. Sandner, Philipp G. & Block, Joern, 2011. "The market value of R&D, patents, and trademarks," Research Policy, Elsevier, vol. 40(7), pages 969-985, September.
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