Generalized Covariance Estimator

ABSTRACT We consider a class of semi-parametric dynamic models with iid errors, including the nonlinear mixed causal-noncausal Vector Autoregressive (VAR), Double-Autoregressive (DAR) and stochastic volatility models. To estimate the parameters characterizing the (nonlinear) serial dependence, we introduce a generic Generalized Covariance (GCov) estimator, which minimizes a residual-based multivariate portmanteau statistic. In comparison to the standard methods of moments, the GCov estimator has an interpretable objective function, circumvents the inversion of high-dimensional matrices, and achieves semi-parametric efficiency in one step. We derive the asymptotic properties of the GCov estimator and show its semi-parametric efficiency. We also prove that the associated residual-based portmanteau statistic is asymptotically chi-square distributed. The finite sample performance of the GCov estimator is illustrated in a simulation study. The estimator is then applied to a dynamic model of commodity futures.