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Simultaneous Equation Models

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Financial Econometrics, Mathematics and Statistics

Abstract

Based upon the discussion of single-equation models in the previous two chapters, in this chapter, we discuss simultaneous equation models, including the basic definition, their specification, and identification. The estimation methods for simultaneous equation models include two-stage least squares estimation method and three-stage least squares estimation method. Some examples of applying simultaneous equation models in finance research are also provided.

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Notes

  1. 1.

    The discussions of the order condition draw heavily from Ramanathan (1995).

  2. 2.

    For more detailed discussions of the rank condition, see econometric books such as Greene (2017), Judge et al. (1985), Fisher (1966), Blalock (1969), and Fogler and Ganapathy (1982).

  3. 3.

    3SLS is a combination of 2SLS and the seemingly uncorrelated regression (SUR) method proposed by Zellner (1962). SUR method will be discussed in the next chapter in detailed.

  4. 4.

    For more detailed discussions, see Ghosh (1991), Judge et al. (1985), and Greene (2017).

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Author information

Authors and Affiliations

  1. Department of Finance and Economics, Rutgers Business School, Rutgers University, Piscataway, NJ, USA

    Cheng-Few Lee

  2. Department of Finance, National Chengchi University, Taipei, Taiwan

    Hong-Yi Chen

  3. Center for PBBEF Research, Morris Plains, NJ, USA

    John Lee

Authors
  1. Cheng-Few Lee
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  2. Hong-Yi Chen
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  3. John Lee
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Correspondence to Cheng-Few Lee .

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Lee, CF., Chen, HY., Lee, J. (2019). Simultaneous Equation Models. In: Financial Econometrics, Mathematics and Statistics. Springer, New York, NY. https://doi.org/10.1007/978-1-4939-9429-8_4

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