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Asymptotic efficiency of the two-stage estimation method for copula-based models

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  • Joe, Harry

Abstract

For multivariate copula-based models for which maximum likelihood is computationally difficult, a two-stage estimation procedure has been proposed previously; the first stage involves maximum likelihood from univariate margins, and the second stage involves maximum likelihood of the dependence parameters with the univariate parameters held fixed from the first stage. Using the theory of inference functions, a partitioned matrix in a form amenable to analysis is obtained for the asymptotic covariance matrix of the two-stage estimator. The asymptotic relative efficiency of the two-stage estimation procedure compared with maximum likelihood estimation is studied. Analysis of the limiting cases of the independence copula and Frechet upper bound help to determine common patterns in the efficiency as the dependence in the model increases. For the Frechet upper bound, the two-stage estimation procedure can sometimes be equivalent to maximum likelihood estimation for the univariate parameters. Numerical results are shown for some models, including multivariate ordinal probit and bivariate extreme value distributions, to indicate the typical level of asymptotic efficiency for discrete and continuous data.

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  • Joe, Harry, 2005. "Asymptotic efficiency of the two-stage estimation method for copula-based models," Journal of Multivariate Analysis, Elsevier, vol. 94(2), pages 401-419, June.
    • Handle: RePEc:eee:jmvana:v:94:y:2005:i:2:p:401-419
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    References listed on IDEAS

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    1. Bengt Muthén, 1978. "Contributions to factor analysis of dichotomous variables," Psychometrika, Springer;The Psychometric Society, vol. 43(4), pages 551-560, December.
    2. Ulf Olsson, 1979. "Maximum likelihood estimation of the polychoric correlation coefficient," Psychometrika, Springer;The Psychometric Society, vol. 44(4), pages 443-460, December.
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