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

Author Info

  • 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
Date of revision:
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. 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.
  2. 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.
  3. Celso Brunetti & Roberto S. Mariano & Chiara Scotti & Augustine H. H. Tan, 2007. "Markov switching GARCH models of currency turmoil in southeast Asia," International Finance Discussion Papers 889, Board of Governors of the Federal Reserve System (U.S.).
  4. 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.
  5. 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.
  6. Andrew J. Filardo, 1993. "Business cycle phases and their transitional dynamics," Research Working Paper 93-14, Federal Reserve Bank of Kansas City.
  7. Massimo Guidolin & Allan Timmerman, 2005. "An econometric model of nonlinear dynamics in the joint distribution of stock and bond returns," Working Papers 2005-003, Federal Reserve Bank of St. Louis.
  8. Huntley Schaller & Simon Van Norden, 1997. "Regime switching in stock market returns," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 177-191.
  9. 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.
  10. 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.
  11. Bekaert, Geert & Harvey, Campbell R, 1995. " Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-44, 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

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