Weighted Empirical Likelihood Estimator for Vector Multiplicative Error Model
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AbstractThe vector multiplicative error model (vector MEM) is capable of analyzing and forecasting multidimensional non-negative valued processes. Usually its parameters are estimated by generalized method of moments (GMM) and maximum likelihood (ML) methods. However, the estimations could be heavily affected by outliers. To overcome this problem, in this paper an alternative approach, the weighted empirical likelihood (WEL) method, is proposed. This method uses moment conditions as constraints and the outliers are detected automatically by performing a k-means clustering on Oja depth values of innovations. The performance of WEL is evaluated against those of GMM and ML methods through extensive simulations, in which three different kinds of additive outliers are considered. Moreover, the robustness of WEL is demonstrated by comparing the volatility forecasts of the three methods on 10-minute returns of the S&P 500 index. The results from both the simulations and the S&P 500 volatility forecasts have shown preferences in using the WEL method. Copyright (c) 2012 John Wiley & Sons, Ltd.
All Author(s) ListDing H, Lam KP
Journal nameJournal of Forecasting
Volume Number32
Issue Number7
Pages613 - 627
LanguagesEnglish-United Kingdom
Keywordsdepth function; empirical likelihood; generalized method of moments; maximum likelihood; multiplicative error model
Web of Science Subject CategoriesBusiness & Economics; Economics; ECONOMICS; Management; MANAGEMENT

Last updated on 2020-31-07 at 23:50