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Some Cautionary Results Concerning Markov-Switching Models with Time-Varying Transition Probabilities

Author Info

Listed author(s):
  • Martín Solá

    ()

  • Zacharias Psaradakis

    ()

  • Fabio Spagnolo

    ()

  • Nicola Spagnolo

    ()

Abstract

This paper investigates some finite-sample issues that arise in the analysis of Markovswitching autoregressive models with time-varying probabilities. An extensive simulation study is undertaken to examine the small-sample properties of the maximum likelihood estimator and related statistics, and to investigate the implications of misspecification due to changes in the parameters of the transition mechanism.

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File URL: http://www.utdt.edu/download.php?fname=_129414579864067500.pdf
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Paper provided by Universidad Torcuato Di Tella in its series Department of Economics Working Papers with number 2010-12.

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Length: 43 pages
Date of creation: Dec 2010
Handle: RePEc:udt:wpecon:2010-12
Contact details of provider: Web page: http://www.utdt.edu/ver_contenido.php?id_contenido=439&id_item_menu=568

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Keywords: Markov switching; Monte Carlo experiments; Time-varying transition probabilities.;

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  1. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
  2. Hall, Stephen & Psaradakis, Zacharias & Sola, Martin, 1997. "Switching error-correction models of house prices in the United Kingdom," Economic Modelling, Elsevier, vol. 14(4), pages 517-527, October.
  3. Engel, Charles & Hakkio, Craig S, 1996. "The Distribution of Exchange Rates in the EMS," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(1), pages 55-67, January.
  4. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
  5. Allan Timmermann & Massimo Guidolin, 2006. "An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 1-22.
  6. Huntley Schaller & Simon Van Norden, 1997. "Regime switching in stock market returns," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 177-191.
  7. Massimo Guidolin & Allan Timmermann, 2008. "International asset allocation under regime switching, skew, and kurtosis preferences," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 889-935, April.
  8. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
  9. Patricia Alvarez-Plata & Mechthild Schrooten, 2006. "The Argentinean Currency Crisis: A Markov-Switching Model Estimation," The Developing Economies, Institute of Developing Economies, vol. 44(1), pages 79-91.
  10. Brunetti, Celso & Scotti, Chiara & Mariano, Roberto S. & Tan, Augustine H.H., 2008. "Markov switching GARCH models of currency turmoil in Southeast Asia," Emerging Markets Review, Elsevier, vol. 9(2), pages 104-128, June.
  11. Psaradakis, Zacharias & Sola, Martin, 1998. "Finite-sample properties of the maximum likelihood estimator in autoregressive models with Markov switching," Journal of Econometrics, Elsevier, vol. 86(2), pages 369-386, June.
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Cited by:

  1. Marie Bessec, 2015. "Revisiting the transitional dynamics of business-cycle phases with mixed frequency data," Post-Print hal-01276824, HAL.
  2. repec:dau:papers:123456789/15246 is not listed on IDEAS
  3. Marie Bessec, 2016. "Revisiting the transitional dynamics of business-cycle phases with mixed frequency data," Working Papers hal-01358595, HAL.

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