Social and Behavioral Sciences Commons^™

Copula-Based Time Series With Filtered Nonstationarity, Xiaohong Chen, Zhijie Xiao, Bo Wang

Cowles Foundation Discussion Papers

Economic and financial time series data can exhibit nonstationary and nonlinear patterns simultaneously. This paper studies copula-based time series models that capture both patterns. We introduce a procedure where nonstationarity is removed via a filtration, and then the nonlinear temporal dependence in the filtered data is captured via a flexible Markov copula. We propose two estimators of the copula dependence parameters: the parametric (two-step) copula estimator where the marginal distribution of the filtered series is estimated parametrically; and the semiparametric (two-step) copula estimator where the marginal distribution is estimated via a rescaled empirical distribution of the filtered series. We show …