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Efficient Estimation of Stochastic Parameters: A GLS Approach

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  • Da Huo, Da

Abstract

This thesis presents a novel rolling GLS-based model to improve the precision of time-varying parameter estimates in dynamic linear models. Through rigorous simulations, the rolling GLS model exhibits enhanced accuracy in scenarios with smaller sample sizes and maintains its efficacy when the normality assumption is relaxed, distinguishing it from traditional models like Kalman Filters. Furthermore, the thesis expands on the model to tackle more complex stochastic structures and validates its effectiveness through practical applications to real-world financial data, like inflation risk premium estimations. The research culminates in offering a robust tool for financial econometrics, enhancing the reliability of financial analyses and predictions.

Suggested Citation

  • Da Huo, Da, 2024. "Efficient Estimation of Stochastic Parameters: A GLS Approach," MPRA Paper 119731, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:119731
    as

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    File URL: https://mpra.ub.uni-muenchen.de/119736/1/MPRA_paper_119731.pdf
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    References listed on IDEAS

    as
    1. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    4. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Time Series Analysis; Dynamic Linear Model; Stochastic Parameters; Least Squares;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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