Estimation and testing nonhomogeneity of Hidden Markov model with application in financial time series

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	Estimation and testing nonhomogeneity of Hidden Markov model with application in financial time series
	Huang, Mian; Huang, Yue; He, Kang
刊名	STATISTICS AND ITS INTERFACE
	2019
卷号	12 期号:2 页码:215-225
关键词	Hidden Markov model Nonhomogeneous transition matrix Generalized likelihood ratio test Kernel regression EM algorithm
ISSN号	1938-7989
英文摘要	Both homogeneous and nonhomogeneous Hidden Markov models (HMM) have been gaining increased attention in financial time series modeling. The homogeneous HMM assumes constant transition probabilities, while nonhomogeneous HMM assumes varying transition matrix depended on some covariates. While both assumptions may seem plausible in different applications, there is a lack of studies from a statistical inference aspect. In this paper, we study the nonhomogeneous hidden Markov model, and propose an estimation via a modified EM algorithm, the kernel regression and local likelihood techniques. The motivation for this new procedure is that it enables us to employ a generalized likelihood ratio test procedure to test whether the transition matrix actually depends on a specific covariate. We propose the CV method to select bandwidth and the BIC method to select number of states, and further propose conditional boot-strap method to assess the standard errors of the estimates. We conduct a simulation study to demonstrate our procedure, and show that the Wilk's type of phenomenon holds for the proposed model. Furthermore, we analyze S&P 500 Index return data. Our analysis reveals different patterns in bull and bear markets, and show that the time varying transitions are statistically significant.
WOS研究方向	Mathematical & Computational Biology ; Mathematics
语种	英语
出版者	INT PRESS BOSTON, INC
WOS记录号	WOS:000460764100003
内容类型	期刊论文
源URL	[http://10.2.47.112/handle/2XS4QKH4/396]
专题	上海财经大学
通讯作者	Huang, Yue
作者单位	Shanghai Univ Finance & Econ, 777 Guoding Rd, Shanghai 200433, Peoples R China
推荐引用方式 GB/T 7714	Huang, Mian,Huang, Yue,He, Kang. Estimation and testing nonhomogeneity of Hidden Markov model with application in financial time series[J]. STATISTICS AND ITS INTERFACE,2019,12(2):215-225.
APA	Huang, Mian,Huang, Yue,&He, Kang.(2019).Estimation and testing nonhomogeneity of Hidden Markov model with application in financial time series.STATISTICS AND ITS INTERFACE,12(2),215-225.
MLA	Huang, Mian,et al."Estimation and testing nonhomogeneity of Hidden Markov model with application in financial time series".STATISTICS AND ITS INTERFACE 12.2(2019):215-225.