Supplementary Material for "Estimation of a Multiplicative Correlation Structure in the Large Dimensional Case"
Supplementary Material for "Estimation of a Multiplicative Correlation Structure in the Large Dimensional Case"
math.ST↗
arXiv subjects
Christian M. Hafner
Publications and source records attributed to Christian M. Hafner.
Estimation of a Multiplicative Correlation Structure in the Large Dimensional Case
We propose a Kronecker product model for correlation or covariance matrices in the large dimensional case. The number of parameters of the model increases logarithmically with the dimension of the matrix. We propose a minimum distance (MD) estimator based on a log-linear property of the model, as well as a one-step estimator, which is a one-step approximation to the quasi-maximum likelihood estimator (QMLE). We establish rates of convergence and central limit theorems (CLT) for our estimators in the large dimensional case. A specification test and tools for Kronecker product model selection and inference are provided. In a Monte Carlo study where a Kronecker product model is correctly specified, our estimators exhibit superior performance. In an empirical application to portfolio choice for SP500 daily returns, we demonstrate that certain Kronecker product models are good approximations to the general covariance matrix.
math.ST↗
Looking Backward and Looking Forward
Filtering has had a profound impact as a device of perceiving information and deriving agent expectations in dynamic economic models. For an abstract economic system, this paper shows that the foundation of applying the filtering method corresponds to the existence of a conditional expectation as an equilibrium process. Agent-based rational behavior of looking backward and looking forward is generalized to a conditional expectation process where the economic system is approximated by a class of models, which can be represented and estimated without information loss. The proposed framework elucidates the range of applications of a general filtering device and is not limited to a particular model class such as rational expectations.
math.PR↗