Asymmetric heavy-tailed vector auto-regressive processes with application to financial data
- 22 January 2020
- journal article
- research article
- Published by Informa UK Limited in Journal of Statistical Computation and Simulation
- Vol. 90 (2), 324-340
- https://doi.org/10.1080/00949655.2019.1680675
Abstract
Vector Auto-regressive (VAR) models are commonly used for modelling multivariate time series and the typical distributional form is to assume a multivariate normal. However, the assumption of Gaussian white noise in multivariate time series is often not reasonable in applications where there are extreme and/or skewed observations. In this setting, inference based on using a Gaussian distributional form will provide misleading results. In this paper, we extended the multivariate setting of autoregressive process, by considering the multivariate scale mixture of skew-normal (SMSN) distributions for VAR innovations. The multivariate SMSN family is able to be represented in a hierarchical form which relatively easily facilitates simulation and an EM-type algorithm to estimate the model parameters. The performance of the proposed model is illustrated by using simulated and real datasets.Keywords
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