Estimating High-Dimensional Time Series Models

Marcelo Medeiros () and Eduardo F. Mendes ()
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Eduardo F. Mendes: Pontifical Catholic University of Rio de Janeiro, Postal: Department of Economics, Rio de Janeiro, JR, Brazil

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We study the asymptotic properties of the Adaptive LASSO (adaLASSO) in sparse, high-dimensional, linear time-series models. We assume both the number of covariates in the model and candidate variables can increase with the number of observations and the number of candidate variables is, possibly, larger than the number of observations. We show the adaLASSO consistently chooses the relevant variables as the number of observations increases (model selection consistency), and has the oracle property, even when the errors are non-Gaussian and conditionally heteroskedastic. A simulation study shows the method performs well in very general settings. Finally, we consider two applications: in the first one the goal is to forecast quarterly US inflation one-step ahead, and in the second we are interested in the excess return of the S&P 500 index. The method used outperforms the usual benchmarks in the literature.

Keywords: sparse models; shrinkage; LASSO; adaLASSO; time series; forecasting. (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Pages: 30
Date: 2012-09-04
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
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Related works:
Working Paper: Estimating High-Dimensional Time Series Models (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2012-37

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