Automated Variable Selection in Vector Multiplicative Error Models

41 Pages Posted: 2 Feb 2009

See all articles by Fabrizio Cipollini

Fabrizio Cipollini

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni)

Date Written: November 20, 2008

Abstract

Multiplicative Error Models (MEM) can be used to trace the dynamics of non- negative valued processes. Interactions between several such processes are accommodated by the vector MEM and estimated by maximum likelihood (Gamma marginals with copula functions) or by Generalized Method of Moments. In choosing the relevant variables one can follow an automated procedure where the full specification is successively pruned in a general-to-specific approach. An efficient and fast algorithm is presented in this paper and evaluated by means of a simulation and a real world example of volatility spillovers in European markets.

Keywords: MEM, Model Selection, Analytic Derivatives, GMM, Copulas

JEL Classification: C22, C51, C52, C53

Suggested Citation

Cipollini, Fabrizio, Automated Variable Selection in Vector Multiplicative Error Models (November 20, 2008). Available at SSRN: https://ssrn.com/abstract=1336511 or http://dx.doi.org/10.2139/ssrn.1336511

Fabrizio Cipollini (Contact Author)

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni) ( email )

Viale Morgagni, 59
Florence, Florence 50134
Italy
+39 055 2751592 (Phone)
+39 055 4223560 (Fax)

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