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Maximum Likelihood Estimation for MA(1) Processes with a Root on or near the Unit Circle

Published online by Cambridge University Press:  11 February 2009

Richard A. Davis  and
William T.M. Dunsmuir
Richard A. Davis
Affiliation:
Colorado State University
William T.M. Dunsmuir
Affiliation:
University of New South Wales
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Abstract

This paper considers maximum likelihood estimation for the moving average parameter θ in an MA(1) model when θ is equal to or close to 1. A derivation of the limit distribution of the estimate θLM, defined as the largest of the local maximizers of the likelihood, is given here for the first time. The theory presented covers, in a unified way, cases where the true parameter is strictly inside the unit circle as well as the noninvertible case where it is on the unit circle. The asymptotic distribution of the maximum likelihood estimator subMLE is also described and shown to differ, but only slightly, from that of θLM. Of practical significance is the fact that the asymptotic distribution for either estimate is surprisingly accurate even for small sample sizes and for values of the moving average parameter considerably far from the unit circle.

Type
Research Article
Information
Econometric Theory , Volume 12 , Issue 1 , March 1996 , pp. 1 - 29
Copyright
Copyright © Cambridge University Press 1996

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