State-Dependent Autoregressive Models: Properties, Estimation and Forecasting

Abstract: This paper studies some temporal dependence properties and addresses the issue of parametric estimation for a class of state-dependent autoregressive models for nonlinear time series in which we assume a stochastic autoregressive coefficient depending on the first lagged value of the process itself. We call such a model state-dependent first-order autoregressive process, (SDAR). We introduce some assumptions under which this class of models is strictly stationary and uniformly ergodic and we establish consistency and asymptotic normality of the quasi-maximum likelihood estimator of the parameters. In order to capture the potentiality of the model, we present an empirical application to nonlinear time series provided by the weekly realized volatility extracted from returns of some European financial indices. The comparison of forecasting accuracy is made considering an alternative approach provided by a two-regime SETAR model