Modelling Longitudinal Data Using a Pair-Copula Decomposition of Serial Dependence

Journal of the American Statistical Association (Theory and Methods Section), Forthcoming

33 Pages Posted: 26 Jul 2010

See all articles by Michael S. Smith

Michael S. Smith

University of Melbourne - Melbourne Business School

Aleksey Min

Technische Universität München (TUM)

Carlos Almeida

affiliation not provided to SSRN

Claudia Czado

Technische Universität München (TUM)

Date Written: June 2010

Abstract

Copulas have proven to be very successful tools for the flexible modelling of cross-sectional dependence. In this paper we express the dependence structure of continuous-valued time series data using a sequence of bivariate copulas. This corresponds to a type of decomposition recently called a ‘vine’ in the graphical models literature, where each copula is entitled a ‘pair-copula’. We propose a Bayesian approach for the estimation of this dependence structure for longitudinal data. Bayesian selection ideas are used to identify any independence pair-copulas, with the end result being a parsimonious representation of a time-inhomogeneous Markov process of varying order. Estimates are Bayesian model averages over the distribution of the lag structure of the Markov process. Using a simulation study we show that the selection approach is reliable and can improve the estimates of both conditional and unconditional pairwise dependencies substantially. We also show that a vine with selection out-performs a Gaussian copula with a flexible correlation matrix. The advantage of the pair-copula formulation is further demonstrated using a longitudinal model of intraday electricity load. Using Gaussian, Gumbel and Clayton pair-copulas we identify parsimonious decompositions of intraday serial dependence, which improve the accuracy of intraday load forecasts. We also propose a new diagnostic for measuring the goodness of fit of high-dimensional multivariate copulas. Overall, the pair-copula model is very general and the Bayesian method generalizes many previous approaches for the analysis of longitudinal data. Supplemental materials for the article are also available online.

Keywords: Longitudinal Copulas, Covariance Selection, Inhomogeneous Markov Process, Dvine, Bayesian Model Selection, Goodness of Fit, Intraday Electricity Load

Suggested Citation

Smith, Michael S. and Min, Aleksey and Almeida, Carlos and Czado, Claudia, Modelling Longitudinal Data Using a Pair-Copula Decomposition of Serial Dependence (June 2010). Journal of the American Statistical Association (Theory and Methods Section), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1647530

Michael S. Smith (Contact Author)

University of Melbourne - Melbourne Business School ( email )

Aleksey Min

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, 80333
Germany

Carlos Almeida

affiliation not provided to SSRN ( email )

Claudia Czado

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, 80333
Germany

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