Adaptive Lasso for Vector Multiplicative Error Models

44 Pages Posted: 4 Aug 2018 Last revised: 10 Jul 2019

See all articles by Luca Cattivelli

Luca Cattivelli

Scuola Normale Superiore

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits; University of Bologna - Rimini Center for Economic Analysis (RCEA); Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti"

Date Written: July 26, 2018

Abstract

In this paper we adopt Adaptive Lasso techniques in vector Multiplicative Error Models (vMEM), and we show that they provide asymptotic consistency in variable selection and the same efficiency as if the set of true predictors were known in advance (oracle property). A Monte Carlo exercise demonstrates the good performance of this approach and an empirical application shows its effectiveness in studying the network of volatility spillovers among European financial indices, during and after the sovereign debt crisis. We conclude demonstrating the superior volatility forecast ability of Adaptive Lasso techniques also when a common trend is removed prior to multivariate volatility spillover analysis.

Keywords: vMEM, Volatility Spillovers, Volatility Forecasting, Adaptive Lasso, Variable Selection, Oracle Property, European Debt Crisis

JEL Classification: C01, C13, C52, C58

Suggested Citation

Cattivelli, Luca and Gallo, Giampiero M., Adaptive Lasso for Vector Multiplicative Error Models (July 26, 2018). Available at SSRN: https://ssrn.com/abstract=3220432 or http://dx.doi.org/10.2139/ssrn.3220432

Luca Cattivelli (Contact Author)

Scuola Normale Superiore ( email )

Piazza dei Cavalieri, 7
Pisa, 56126
Italy

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits ( email )

viale Mazzini
Roma, Roma 00195
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti" ( email )

Viale G.B. Morgagni, 59
Florence, 50134
Italy
0039 055 2751 591 (Phone)
0039 055 4223560 (Fax)

HOME PAGE: http://www.disia.unifi.it/gallog

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