A martingale decomposition of discrete Markov chains

Peter Hansen

Economics Letters, 2015, vol. 133, issue C, 14-18

Abstract: We consider a multivariate time series whose increments are given from a homogeneous Markov chain. We show that the martingale component of this process can be extracted by a filtering method and establish the corresponding martingale decomposition in closed-form. This representation is useful for the analysis of time series that are confined to a grid, such as financial high frequency data.

Keywords: Markov chain; Martingale; Beveridge–Nelson decomposition (search for similar items in EconPapers)
JEL-codes: C10 C22 C58 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: A Martingale Decomposition of Discrete Markov Chains (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:133:y:2015:i:c:p:14-18

DOI: 10.1016/j.econlet.2015.04.028

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