Estimation of High-Dimensional Markov-Switching VAR Models with an Approximate EM Algorithm

• URL: http://arxiv.org/abs/2210.07456v1
• Date: Fri, 14 Oct 2022 01:55:02 GMT
• Title: Estimation of High-Dimensional Markov-Switching VAR Models with an Approximate EM Algorithm
• Authors: Xiudi Li, Abolfazl Safikhani, Ali Shojaie
• Abstract summary: Regime shifts in high-dimensional time series arise naturally in many applications to finance. We propose an EM algorithm for Markov-switching models that leads to efficient computation and investigation of the resulting parameter estimates. We establish the consistency of the proposed EM algorithm in high dimensions and investigate its performance via simulation studies.
• Score: 4.069325369211861
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: Regime shifts in high-dimensional time series arise naturally in many applications, from neuroimaging to finance. This problem has received considerable attention in low-dimensional settings, with both Bayesian and frequentist methods used extensively for parameter estimation. The EM algorithm is a particularly popular strategy for parameter estimation in low-dimensional settings, although the statistical properties of the resulting estimates have not been well understood. Furthermore, its extension to high-dimensional time series has proved challenging. To overcome these challenges, in this paper we propose an approximate EM algorithm for Markov-switching VAR models that leads to efficient computation and also facilitates the investigation of asymptotic properties of the resulting parameter estimates. We establish the consistency of the proposed EM algorithm in high dimensions and investigate its performance via simulation studies.

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