Dynamic Spatial Autoregressive Models with Autoregressive and Heteroskedastic Disturbances

36 Pages Posted: 5 Apr 2016

See all articles by Leopoldo Catania

Leopoldo Catania

Aarhus University - School of Business and Social Sciences; Aarhus University - CREATES

Anna Gloria Billé

University of Padua

Date Written: March 30, 2016

Abstract

We propose a new class of models specifi cally tailored for spatio-temporal data analysis. To this end, we generalize the spatial autoregressive model with autoregressive and heteroskedastic disturbances, i.e. SARAR(1,1), by exploiting the recent advancements in Score Driven (SD) models typically used in time series econometrics. In particular, we allow for time-varying spatial autoregressive coefficients as well as time-varying regressor coefficients and cross-sectional standard deviations. We report an extensive Monte Carlo simulation study in order to investigate the finite sample properties of the Maximum Likelihood estimator for the new class of models as well as its exibility in explaining several dynamic spatial dependence processes. The new proposed class of models are found to be economically preferred by rational investors through an application in portfolio optimization.

Keywords: SARAR, time varying parameters, spatio-temporal data, score driven models

Suggested Citation

Catania, Leopoldo and Billé, Anna Gloria, Dynamic Spatial Autoregressive Models with Autoregressive and Heteroskedastic Disturbances (March 30, 2016). CEIS Working Paper No. 375, Available at SSRN: https://ssrn.com/abstract=2756615 or http://dx.doi.org/10.2139/ssrn.2756615

Leopoldo Catania (Contact Author)

Aarhus University - School of Business and Social Sciences ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark
+4587165536 (Phone)

HOME PAGE: http://pure.au.dk/portal/en/leopoldo.catania@econ.au.dk

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Anna Gloria Billé

University of Padua ( email )

Via C. Battisti, 241
Padova, Padua 35121
Italy

HOME PAGE: http://homes.stat.unipd.it/annagloriabille/

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