Nuisance parameters, composite likelihoods and a panel of GARCH models

Cavit Pakel, Neil Shephard () and Kevin Sheppard ()

No 2009-W12, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: We investigate the properties of the composite likelihood (CL) method for (T ×N_T ) GARCH panels. The defining feature of a GARCH panel with time series length T is that, while nuisance parameters are allowed to vary across N_T series, other parameters of interest are assumed to be common. CL pools information across the panel instead of using information available in a single series only. Simulations and empirical analysis illustrate that in reasonably large T CL performs well. However, due to the estimation error introduced through nuisance parameter estimation, CL is subject to the “incidental parameter” problem for small T.

Keywords: ARCH models; composite likelihood; nuisance parameters; panel data (search for similar items in EconPapers)
JEL-codes: C01 C14 C32 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2009-10-02
New Economics Papers: this item is included in nep-ecm and nep-ets
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http://www.nuffield.ox.ac.uk/economics/papers/2009/w12/cavit300909.pdf (application/pdf)

Related works:
Working Paper: Nuisance parameters, composite likelihoods and a panel of GARCH models (2009)
Working Paper: Nuisance parameters, composite likelihoods and a panel of GARCH models (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0912

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