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The strong consistency and asymptotic normality of the maximum likelihood estimator in observation-driven models usually requires the study of the model both as a filter for the time-varying parameter and as a data generating process (DGP) for observed data. The probabilistic properties of the...
Persistent link: https://www.econbiz.de/10011272581
We investigate the information theoretic optimality properties of the score function of the predictive likelihood as a device to update parameters in observation driven time-varying parameter models. The results provide a new theoretical justification for the class of generalized autoregressive...
Persistent link: https://www.econbiz.de/10011272597
This discussion paper led to an article in the <I>Journal of Applied Econometrics</I> (2005). Vol. 20, issue 2, pages 311-323.<P> Various economic theories are available to explain the existence of credit and default cycles. There remains empirical ambiguity, however, as to whether or these cycles...</p></i>
Persistent link: https://www.econbiz.de/10011255530
We advocate the use of absolute moment ratio statistics in conjunctionwith standard variance ratio statistics in order to disentangle lineardependence, non-linear dependence, and leptokurtosis in financial timeseries. Both statistics are computed for multiple return horizonssimultaneously, and...
Persistent link: https://www.econbiz.de/10011255607
We extend the Hidden Markov Model for defaults of Crowder, Davis, and Giampieri (2005) to include covariates. The covariates enhance the prediction of transition probabilities from high to low default regimes. To estimate the model, we extend the EM estimating equations to account for the time...
Persistent link: https://www.econbiz.de/10011255628
We propose a new class of observation driven time series models referred to as Generalized Autoregressive Score (GAS) models. The driving mechanism of the GAS model is the scaled score of the likelihood function. This approach provides a unified and consistent framework for introducing...
Persistent link: https://www.econbiz.de/10011255643
We provide a new definition of breakdown in finite samples with an extension to asymptotic breakdown. Previous definitions center around defining a critical region for either the parameter or the objective function. If for a particular outlier constellation the critical region is entered,...
Persistent link: https://www.econbiz.de/10011255743
A new empirical reduced-form model for credit rating transitions is introduced. It is a parametric intensity-based duration model with multiple states and driven by exogenous covariates and latent dynamic factors. The model has a generalized semi-Markov structure designed to accommodate many of...
Persistent link: https://www.econbiz.de/10011255831
Recent models for credit risk management make use of Hidden Markov Models (HMMs). The HMMs are used to forecast quantiles of corporate default rates. Little research has been done on the quality of such forecasts if the underlying HMM is potentially mis-specified. In this paper, we focus on...
Persistent link: https://www.econbiz.de/10011255911
U.S. trading in non-U.S. stocks has grown dramatically. Round-the-clock, these stocks trade in the home market, in the U.S. marketand, potentially, in both markets simultaneously. We use a state space model to study 24-hour price discovery. As opposed to thestandard "variance ratio'' approach,...
Persistent link: https://www.econbiz.de/10011256044