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A Metropolis-in-Gibbs Sampler for Estimating Equity Market Factors

  • Sarantis Tsiaplias

    ()

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

A model incorporating common Markovian regimes and GARCH residuals in a persistent factor environment is considered. Given the intractable and approximate nature of the likelihood function, a Metropolis-in-Gibbs sampler with Bayesian features is constructed for estimation purposes. The common factor drawing procedure is effectively an exact derivation of the Kalman filter with a Markovian regime component and GARCH innovations. To accelerate the drawing procedure, approximations to the conditional density of the common component are considered. The model is applied to equity data for 18 developed markets to derive global, European, and country specific equity market factors.

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File URL: http://www.melbourneinstitute.com/downloads/working_paper_series/wp2007n18.pdf
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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2007n18.

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Length: 52 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:iae:iaewps:wp2007n18
Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
Fax: +61 3 8344 2111
Web page: http://www.melbourneinstitute.com/
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