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A Functional-Coefficient VAR Model for Dynamic Quantiles and Its Application to Constructing Nonparametric Financial Network

Author

Listed:
  • Zongwu Cai

    (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA)

  • Xiyuan Liu

    (School of Economics and Management, Tshinghua University, Beijing, Beijing 100084, China)

  • Liangjun Su

    (School of Economics and Management, Tshinghua University, Beijing, Beijing 100084, China)

Abstract

In this article, we investigate a functional coefficient vector autoregressive model for conditional quantiles, in which the interdependences among tail risks such as Value-at-Risk are allowed to vary smoothly with a variable of general economy. Methodologically, we develop an easy-to-implement three-stage procedure to estimate functionals in the dynamic network system based on basis function approximation, LASSO-type penalties and the local linear smoothing technique. We establish the consistency and the asymptotic normality of the proposed estimator under strongly mixing time series settings. The simulation studies are conducted to show that our new methods work fairly well. The potential of the proposed estimation procedures is demonstrated by an empirical study of constructing and estimating a new type of nonparametric dynamic financial network.

Suggested Citation

  • Zongwu Cai & Xiyuan Liu & Liangjun Su, 2020. "A Functional-Coefficient VAR Model for Dynamic Quantiles and Its Application to Constructing Nonparametric Financial Network," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202406, University of Kansas, Department of Economics, revised Jan 2024.
    • Handle: RePEc:kan:wpaper:202406
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    References listed on IDEAS

    as
    1. Horowitz, Joel L. & Lee, Sokbae, 2005. "Nonparametric Estimation of an Additive Quantile Regression Model," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 1238-1249, December.
    2. Xiao, Zhijie & Koenker, Roger, 2009. "Conditional Quantile Estimation for Generalized Autoregressive Conditional Heteroscedasticity Models," Journal of the American Statistical Association, American Statistical Association, vol. 104(488), pages 1696-1712.
    3. Koenker, Roger & Zhao, Quanshui, 1996. "Conditional Quantile Estimation and Inference for Arch Models," Econometric Theory, Cambridge University Press, vol. 12(5), pages 793-813, December.
    4. Cai, Zongwu & Xu, Xiaoping, 2009. "Nonparametric Quantile Estimations for Dynamic Smooth Coefficient Models," Journal of the American Statistical Association, American Statistical Association, vol. 104(485), pages 371-383.
    5. Carrasco, Marine & Chen, Xiaohong, 2002. "Mixing And Moment Properties Of Various Garch And Stochastic Volatility Models," Econometric Theory, Cambridge University Press, vol. 18(1), pages 17-39, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Conditional quantile models; Dynamic financial network; Functional coefficient models; Nonparametric estimation; Tensor-product B-spline; VAR modeling.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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