Stochastic Investment Modelling: a Multiple Time-Series Approach

W.S. Chan

British Actuarial Journal, 2002, vol. 8, issue 3, 545-591

Abstract: In this paper we adopt the multiple time-series modelling approach suggested by Tiao & Box (1981) to construct a stochastic investment model for price inflation, share dividends, share dividend yields and long-term interest rates in the United Kingdom. This method has the advantage of being direct and transparent. The sequential and iterative steps of tentative specification, estimation and diagnostic checking parallel those of the well-known Box-Jenkins method in the univariate time-series analysis. It is not required to specify any a priori causality as compared to some other stochastic asset models in the literature.

Date: 2002
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