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Imputation Methods for Incomplete Dependent Variables in Finance

Author

Listed:
  • Paul Kofman

    (University of Melbourne)

  • Ian Sharpe

    (School of Banking and Finance, University of New South Wales)

Abstract

Missing observations in dependent variables is a common feature of many financial applications. Standard ad hoc missing value imputation methods invariably fail to deliver efficient and unbiased parameter estimates. A number of recently developed classical and Bayesian iterative methods are evaluated for the treatment of missing dependent variables when the independent variables are completely observed. These methods are compared by simulation to commonly applied alternative missing data methodologies in the finance literature. The methods are then applied to a system of simultaneous equations modelling the maturity, secured status, and pricing of U.S. bank revolving loan contracts. Two of the four dependent varaibles in this application are characterised by severe missingness. The system of equations approach allows us to also exploit the additional information contained in the interdependencies among these features. The results indicate that proper treatement of missingness can be important for many financial applications.

Suggested Citation

  • Paul Kofman & Ian Sharpe, 2000. "Imputation Methods for Incomplete Dependent Variables in Finance," Research Paper Series 33, Quantitative Finance Research Centre, University of Technology, Sydney.
  • Handle: RePEc:uts:rpaper:33
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    Cited by:

    1. Andrew J. Patton, 2006. "Estimation of multivariate models for time series of possibly different lengths," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(2), pages 147-173.
    2. Patton, Andrew J, 2001. "Estimation of Copula Models for Time Series of Possibly Different Length," University of California at San Diego, Economics Working Paper Series qt3fc1c8hw, Department of Economics, UC San Diego.

    More about this item

    Keywords

    missing data; em-algorithm; ip-algorithm; multiple imputations; revolving loan characteristics;

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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