In the Nick of Time: A Heteroskedastic SVAR Model and Its Application to the Crude Oil Futures Market

Hang Sun, Jaap W.B. Bos, Zhuo Li

Research output: Working paper / PreprintWorking paper

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Abstract

Many economic analyses revolve around the identification of shocks. However, this becomes difficult if we do not have enough information, for example because we do not observe the underlying process at a high enough frequency. As a result, if the response of one variable to a shock to another takes place `in the nick of time' this shock remains unidentified. We introduce a structural vector-autoregression model with Markov-switching heteroskedasticity in the data generating process that allows us to study instantaneous impulse-response relationships with the proper selection of a supporting `catalyst', which can be easier to find than an instrumental variable.
Original languageEnglish
PublisherMaastricht University, Graduate School of Business and Economics
DOIs
Publication statusPublished - 31 Aug 2017

Publication series

SeriesGSBE Research Memoranda
Number019

JEL classifications

  • g13 - "Contingent Pricing; Futures Pricing; option pricing"
  • c32 - "Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models"
  • q02 - Global Commodity Crises

Keywords

  • SVAR
  • Identification
  • Markov-switching
  • Commodity prices
  • Index Trading

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