Template-type: ReDIF-Paper 1.0
Author-Name: Cavit Pakel
Author-Email: cavit.pakel@economics.ox.ac.uk
Author-Workplace-Name: Department of Economics and Oxford-Man Institute, University of Oxford, Oxford 
Author-Name: Neil Shephard
Author-Email: neil.shephard@economics.ox.ac.uk
Author-Workplace-Name: Oxford-Man Institute and Department of Economics, University of Oxford, Oxford
Author-Name: Kevin Sheppard
Author-Email: kevin.sheppard@economics.ox.ac.uk
Author-Workplace-Name:  Oxford-Man Institute and Department of Economics, University of Oxford, Oxford
Title: Nuisance parameters, composite likelihoods and a panel of GARCH models
Abstract: We investigate the properties of the composite likelihood (CL) method for (T ×N_T ) GARCH
panels. The defining feature of a GARCH panel with time series length T is that, while nuisance
parameters are allowed to vary across N_T series, other parameters of interest are assumed to
be common. CL pools information across the panel instead of using information available in a
single series only. Simulations and empirical analysis illustrate that in reasonably large T CL
performs well. However, due to the estimation error introduced through nuisance parameter
estimation, CL is subject to the “incidental parameter” problem for small T.
Keywords: ARCH models; composite likelihood; nuisance parameters; panel data
Classification-JEL: C01, C14, C32
Length: 22 pages
Creation-Date: 2009-10-02
Number: 2009-W12
File-URL: http://www.nuffield.ox.ac.uk/economics/papers/2009/w12/cavit300909.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:0912