Automated model selection in finance: general-to-specific modelling of the mean and volatility specifications Articles uri icon

publication date

  • October 2012

start page

  • 716

end page

  • 735

volume

  • 74

international standard serial number (ISSN)

  • 0305-9049

electronic international standard serial number (EISSN)

  • 1468-0084

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.