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Structural and Predictive Analyses with a Mixed Copula-Based Vector Autoregression Model

Author

Listed:
  • Woraphon Yamaka

    (Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University; Chiang Mai 50200, Thailand)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria 0002, South Africa)

  • Sukrit Thongkairat

    (Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University; Chiang Mai 50200, Thailand)

  • Paravee Maneejuk

    (Center of Excellence in Econometrics, Faculty of Economics, Chiang Mai University; Chiang Mai 50200, Thailand)

Abstract

In this study, we introduce a mixed copula-based vector autoregressive (VAR) model for investigating the relationship between random variables. The one-step maximum likelihood estimation is used to obtain point estimates of the autoregressive parameters and mixed copula parameters. More specifically, we combine the likelihoods of the marginal and mixed Copula to construct the full likelihood function. The simulation study is used to confirm the accuracy of the estimation as well as the reliability of the proposed model. Various mixed copula forms from a combination of Gaussian, Student-t, Clayton, Frank, Gumbel, and Joe copulas are introduced. The proposed model is compared to the traditional VAR model and single copula-based VAR models to assess its performance. Furthermore, the real data study is also conducted to validate our proposed method. As a result, it is found that the one-step maximum likelihood provides accurate and reliable results. Also, we show that if we ignore the complex and nonlinear correlation between the errors, it causes significant efficiency loss in the parameter estimation, in terms of Bias and MSE. In the application study, the mixed copula-based VAR is the best fitting Copula for our application study.

Suggested Citation

  • Woraphon Yamaka & Rangan Gupta & Sukrit Thongkairat & Paravee Maneejuk, 2021. "Structural and Predictive Analyses with a Mixed Copula-Based Vector Autoregression Model," Working Papers 202108, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202108
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    References listed on IDEAS

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    Keywords

    Forecasting; Mixed copula; One step maximum likelihood estimation; Vector autoregressive;
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