Time series modelling with semiparametric factor dynamics
Szymon Borak,
Wolfgang Härdle,
Enno Mammen and
Byeong U. Park
No 2007-023, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk
Abstract:
High-dimensional regression problems which reveal dynamic behavior are typically analyzed by time propagation of a few number of factors. The inference on the whole system is then based on the low-dimensional time series analysis. Such highdimensional problems occur frequently in many different fields of science. In this paper we address the problem of inference when the factors and factor loadings are estimated by semiparametric methods. This more flexible modelling approach poses an important question: Is it justified, from inferential point of view, to base statistical inference on the estimated times series factors? We show that the difference of the inference based on the estimated time series and 'true' unobserved time series is asymptotically negligible. Our results justify fitting vector autoregressive processes to the estimated factors, which allows one to study the dynamics of the whole high-dimensional system with a low-dimensional representation. We illustrate the theory with a simulation study. Also, we apply the method to a study of the dynamic behavior of implied volatilities and discuss other possible applications in finance and economics.
Keywords: semiparametric models; factor models; implied volatility surface; vector autoregressive process; asymptotic inference (search for similar items in EconPapers)
JEL-codes: C14 C32 G12 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://www.econstor.eu/bitstream/10419/25195/1/558538673.PDF (application/pdf)
Related works:
Journal Article: Time Series Modelling With Semiparametric Factor Dynamics (2009) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2007-023
Access Statistics for this paper
More papers in SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().