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Local GMM estimation of time series models with conditional moment restrictions

Gospodinov, Nikolay and Otsu, Taisuke (2012) Local GMM estimation of time series models with conditional moment restrictions. Journal of Econometrics, 170 (2). pp. 476-490. ISSN 0304-4076

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Abstract

This paper investigates statistical properties of the local generalized method of moments (LGMM) estimator for some time series models defined by conditional moment restrictions. First, we consider Markov processes with possible conditional heteroskedasticity of unknown forms and establish the consistency, asymptotic normality, and semi-parametric efficiency of the LGMM estimator. Second, we undertake a higher-order asymptotic expansion and demonstrate that the LGMM estimator possesses some appealing bias reduction properties for positively autocorrelated processes. Our analysis of the asymptotic expansion of the LGMM estimator reveals an interesting contrast with the OLS estimator that helps to shed light on the nature of the bias correction performed by the LGMM estimator. The practical importance of these findings is evaluated in terms of a bond and option pricing exercise based on a diffusion model for spot interest rate.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-econom...
Additional Information: © 2012 Elsevier
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C13 - Estimation
C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C22 - Time-Series Models
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Sets: Departments > Economics
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 16 Oct 2012 15:44
URL: http://eprints.lse.ac.uk/46835/

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