Nuisance parameters, composite likelihoods and a panel of GARCH models
We investigate the properties of the composite likelihood (CL) method for (T x NT) GARCH panels.� The defining feature of a GARCH panel with time series length T is that, while nuisance parameters are allowed to vary across NT series, other parameters of interest are assumed to be common.� CL pools information across the panel instead of using information available in a single series only.� Simulations and empirical analysis illustate that in reasonably large T CL performs well.� However, due to the estimation error introduced through nuisance parameter estimation, CL is subject to the "incidental parameter" problem for small T.
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