Nonparametric estimation of time-varying covariance matrix in a slowly changing vector random walk model

Feng, Yuanhua and Yu, Keming (2006): Nonparametric estimation of time-varying covariance matrix in a slowly changing vector random walk model. Unpublished.

Abstract

A new multivariate random walk model with slowly changing parameters is introduced and investigated in detail. Nonparametric estimation of local covariance matrix is proposed. The asymptotic distributions, including asymptotic biases, variances and covariances of the proposed estimators are obtained. The properties of the estimated value of a weighted sum of individual nonparametric estimators are also studied in detail. The integrated effect of the estimation errors from the estimation for the difference series to the integrated processes is derived. Practical relevance of the model and estimation is illustrated by application to several foreign exchange rates.

• Item Type: MPRA Paper
• Institution: Heriot-Watt University and Brunel University
• Language: English
• Keywords: Multivariate time series; slowly changing vector random walk; local covariance matrix; kernel estimation; asymptotic properties; forecasting
• Subjects: C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C32 - Time-Series Models; Dynamic Quantile Regressions; G - Financial Economics > G0 - General > G00 - General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C14 - Semiparametric and Nonparametric Methods

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