Modeling serially correlated heavy-tailed data with some missing response values using stochastic EM algorithm

Abstract The linear regression model is a popular tool used by almost all in different areas of research. The model relies mainly on the assumption of uncorrelated errors from a Gaussian distribution. However, many datasets in practice violate this basic assumption, making inference in such cases invalid. Therefore, the linear regression model with structured errors driven by heavy-tailed innovations are preferred in practice. Another issue that occur frequently with real-life data is missing values, due to some reasons such as system breakdown and labor unrest. Despite the challenge these two issues pose to practitioners, there is scarcity of literature where they have jointly been studied. Hence, this article considers these two issues jointly, for the first time, and develops an efficient parameter estimation procedure for Student’s-t autoregressive regression model for time series with missing values of the response variable. The procedure is based on a stochastic approximation expectation–maximization algorithm coupled with a Markov chain Monte Carlo technique. The procedure gives efficient closed-form expressions for the parameters of the model, which are very easy to compute. Simulations and real-life data analysis show that the method is efficient for use with incomplete time series data.