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Bayesian Analysis of Switching ARCH Models

Kaufmann, Sylvia and Frühwirth-Schnatter, Sylvia (2000) Bayesian Analysis of Switching ARCH Models. Forschungsberichte / Institut für Statistik, 72. Department of Statistics and Mathematics, WU Vienna University of Economics and Business, Vienna.

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Abstract

We consider a time series model with autoregressive conditional heteroskedasticity that is subject to changes in regime. The regimes evolve according to a multistate latent Markov switching process with unknown transition probabilities, and it is the constant in the variance process of the innovations that is subject to regime shifts. The joint estimation of the latent process and all model parameters is performed within a Bayesian framework using the method of Markov Chain Monte Carlo simulation. We perform model selection with respect to the number of states and the number of autoregressive parameters in the variance process using Bayes factors and model likelihoods. To this aim, the model likelihood is estimated by combining the candidate's formula with importance sampling. The usefulness of the sampler is demonstrated by applying it to the dataset previously used by Hamilton and Susmel who investigated models with switching autoregressive conditional heteroskedasticity using maximum likelihood methods. The paper concludes with some issues related to maximum likelihood methods, to classical model select ion, and to potential straightforward extensions of the model presented here. (author's abstract)

Item Type: Paper
Keywords: Bayesian analysis / MCMC estimation / model selection / switching ARCH-models
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Depositing User: Repository Administrator
Date Deposited: 12 Jul 2006 07:44
Last Modified: 03 Feb 2015 21:33
URI: http://epub.wu.ac.at/id/eprint/744

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