Modeling and Estimation of Synchronization in Multistate Markov-Switching Models

Arbeitspapier

This paper develops a Markov-Switching vector autoregressive model that allows for imperfect synchronization of cyclical regimes in multiple variables, due to phase shifts of a single common cycle. The model has three key features: (i) the amount of phase shift can be different across regimes (as well as across variables), (ii) it allows the cycle to consist of any number of regimes J is larger than or equal to 2, and (iii) it allows for regime-dependent volatilities and correlations. In an empirical application to monthly returns on size-based stock portfolios, a three-regime model with asymmetric phase shifts and regime-dependent heteroscedasticity is found to characterize the joint distribution of returns most adequately. While large- and small-cap portfolios switch contemporaneously into boom and crash regimes, the large-cap portfolio leads the small-cap portfolio for switches to a moderate regime by a month.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 11-002/4

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Model Construction and Estimation ; Model Evaluation, Validation, and Selection
• Subject: imperfect synchronization ; phase shifts ; regime-switching models ; Bayesian analysis ; Zeitreihenanalyse ; Markovscher Prozess ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cakmakli, Cem ; Paap, Richard ; van Dijk, Dick J.C.
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/86976
• Last update: 10.03.2025, 11:42 AM CET