Bayesian Analysis of Beta Autoregressive Moving Average Models

Abstract

This work presents a Bayesian approach for the estimation of Beta Autoregressive Moving Average ($\beta$ARMA) models. We discuss standard choice for the prior distributions and employ a Hamiltonian Monte Carlo algorithm to sample from the posterior. We propose a method to approach the problem of unit roots in the model's systematic component. We then present a series of Monte Carlo simulations to evaluate the performance of this Bayesian approach. In addition to parameter estimation, we evaluate the proposed approach to verify the presence of unit roots in the model's systematic component and study prior sensitivity. An empirical application is presented to exemplify the usefulness of the method. In the application, we compare the fitted Bayesian and frequentist approaches in terms of their out-of-sample forecasting capabilities.