Selection of Multivariate Stochastic Volatility Models via Bayesian Stochastic Search

Shawn Ni (), Antonello Loddo and Dongchu Sun

No 911, Working Papers from Department of Economics, University of Missouri

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.

Keywords: Bayesian VAR; Particle Filter; Markov Chain Monte Carlo; Model Selection (search for similar items in EconPapers)
JEL-codes: C11 C15 C32 (search for similar items in EconPapers)
Pages: 37 pgs.
Date: 2009-10-12
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Related works:
Journal Article: Selection of Multivariate Stochastic Volatility Models via Bayesian Stochastic Search (2011)
Journal Article: Selection of Multivariate Stochastic Volatility Models via Bayesian Stochastic Search (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:umc:wpaper:0911

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