Selection of Multivariate Stochastic Volatility Models via Bayesian Stochastic Search

Antonello Loddo, Shawn Ni () and Dongchu Sun

Journal of Business & Economic Statistics, 2011, vol. 29, issue 3, 342-355

Abstract: We propose a Bayesian stochastic search approach to selecting restrictions on multivariate regression models where the errors exhibit deterministic or stochastic conditional volatilities. We develop a Markov chain Monte Carlo (MCMC) algorithm that generates posterior restrictions on the regression coefficients and Cholesky decompositions of the covariance matrix of the errors. Numerical simulations with artificially generated data show that the proposed method is effective in selecting the data-generating model restrictions and improving the forecasting performance of the model. Applying the method to daily foreign exchange rate data, we conduct stochastic search on a VAR model with stochastic conditional volatilities.

Date: 2011
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Citations: View citations in EconPapers (9)

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Journal Article: Selection of Multivariate Stochastic Volatility Models via Bayesian Stochastic Search (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:29:y:2011:i:3:p:342-355

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DOI: 10.1198/jbes.2010.08197

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