Sequential Monte Carlo estimation for Present-Value model

ABSTRACT

Multi-modal likelihood function of Present-Value model makes traditional estimation approach sensitive to initial values. In this article, we apply Sequential Monte Carlo (SMC) approach in the estimation of Present-Value model, since it is robust to multi-modality. Simulation studies show that SMC approach is preferable than Simulated Annealing (SA) since the latter is sensitive to initial values. Finally, we find that stock market return in the U.S. is more persistent than dividend growth rate according to our empirical study.

KEYWORDS:

• Present-Value model
• simulated annealing
• sequential Monte Carlo
• estimation

JEL CLASSIFICATION:

• C11
• C13
• G12

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

Yong Li gratefully acknowledges the financial support of the Fundamental Research Funds for the Central Universities, and the Research Funds of Renmin University of China (No.14XNI005).