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Abstract Details
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Activity Number:
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323
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Type:
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Topic Contributed
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Date/Time:
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Tuesday, July 31, 2012 : 10:30 AM to 12:20 PM
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Sponsor:
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SSC
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| Abstract - #304545 |
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Title:
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Composite Likelihood Approach for the Analysis of Exchange Rates
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Author(s):
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Peiming Wang*+ and Jiahua Chen
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Companies:
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Auckland University of Technology and SSC
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Address:
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AUT City Campus, Auckland, _, 1142, New Zealand
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Keywords:
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Composite likelihood ;
EM-algorithm ;
Foreign exchange rate ;
Markov regime-switching ;
Finite mixture model
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Abstract:
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This paper proposes a composite likelihood approach as an alternative to the full likelihood approach for the two-state Markov regime-switching model proposed by Engel and Hamilton (1990) for exchange rate time series. The proposed method is based on the joint density of pairs of consecutive observations, and its asymptotic properties are discussed. A simulation study indicates that the proposed method is more efficient and has better in-sample performance. An analysis of the USD/GBP exchange rate shows that the proposed method is more robust for inference about changes in the exchange-rate regime and better than the full likelihood method in terms of both in-sample and out-of-sample performance.
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Authors who are presenting talks have a * after their name.
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