Long-Term Association in Time Series and Simultaneous Equation Modelling: A Case Study
DOI:
https://doi.org/10.53739/samvad/2019/v17/145229Keywords:
Call, Futures, Put, TSLS, VolatilityAbstract
Simultaneity (Endogeneity) is a normal phenomenon observed in financial data. Modelling of more than one endogenous variable in a single equation using OLS (Optimum Lead Square) is faulty due to the violation of the assumptions of OLS estimator. Therefore, systems of equation (Simultaneous equation modelling) is used instead to OLS. Two stage least square (TSLS) or Generalized method of moments (GMM) is used to estimate systems of equation. This case study highlights the usage of TSLS to estimate systems of equations.
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