Automated Model Selection in Finance: General‐to‐Specific Modelling of the Mean and Volatility Specifications* |
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Authors: | Genaro Sucarrat Alvaro Escribano |
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Institution: | 1. Department of Economics, BI Norwegian Business School, Nydalsveien 37, 0484, Oslo, Norway (e‐mail: genaro.sucarrat@bi.no);2. Department of Economics, Universidad Carlos III de Madrid, Calle Madrid 126, 28903, Getafe (Madrid), Spain (e‐mail: alvaroe@eco.uc3m.es) |
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Abstract: | General‐to‐Specific (GETS) modelling has witnessed major advances thanks to the automation of multi‐path GETS specification search. However, the estimation complexity associated with financial models constitutes an obstacle to automated multi‐path GETS modelling in finance. Making use of a recent result we provide and study simple but general and flexible methods that automate financial multi‐path GETS modelling. Starting from a general model where the mean specification can contain autoregressive terms and explanatory variables, and where the exponential volatility specification can include log‐ARCH terms, asymmetry terms, volatility proxies and other explanatory variables, the algorithm we propose returns parsimonious mean and volatility specifications. |
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Keywords: | C32 C51 C52 E44 |
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