EconPapers    
Economics at your fingertips  
 

Identification in Bayesian Estimation of the Skewness Matrix in a Multivariate Skew-Elliptical Distribution

Sakae Oya and Teruo Nakatsuma

Papers from arXiv.org

Abstract: Harvey et al. (2010) extended the Bayesian estimation method by Sahu et al. (2003) to a multivariate skew-elliptical distribution with a general skewness matrix, and applied it to Bayesian portfolio optimization with higher moments. Although their method is epochal in the sense that it can handle the skewness dependency among asset returns and incorporate higher moments into portfolio optimization, it cannot identify all elements in the skewness matrix due to label switching in the Gibbs sampler. To deal with this identification issue, we propose to modify their sampling algorithm by imposing a positive lower-triangular constraint on the skewness matrix of the multivariate skew- elliptical distribution and improved interpretability. Furthermore, we propose a Bayesian sparse estimation of the skewness matrix with the horseshoe prior to further improve the accuracy. In the simulation study, we demonstrate that the proposed method with the identification constraint can successfully estimate the true structure of the skewness dependency while the existing method suffers from the identification issue.

Date: 2021-08
New Economics Papers: this item is included in nep-ecm, nep-isf and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2108.04019 Latest version (application/pdf)

Related works:
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:arx:papers:2108.04019

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2025-03-19
Handle: RePEc:arx:papers:2108.04019