A Multivariate Realized GARCH Model
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arXiv
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| Main Authors: | , , |
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| Format: | Preprint |
| Published: |
2020
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| _version_ | 1866913679754133504 |
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| author | Archakov, Ilya Hansen, Peter Reinhard Lunde, Asger |
| author_facet | Archakov, Ilya Hansen, Peter Reinhard Lunde, Asger |
| contents | We propose a novel class of multivariate GARCH models that incorporate realized measures of volatility and correlations. The key innovation is an unconstrained vector parametrization of the conditional correlation matrix, which enables the use of factor models for correlations. This approach elegantly addresses the main challenge faced by multivariate GARCH models in high-dimensional settings. As an illustration, we explore block correlation matrices that naturally simplify to linear factor models for the conditional correlations. The model is applied to the returns of nine assets, and its in-sample and out-of-sample performance compares favorably against several popular benchmarks. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2012_02708 |
| institution | arXiv |
| publishDate | 2020 |
| record_format | arxiv |
| spellingShingle | A Multivariate Realized GARCH Model Archakov, Ilya Hansen, Peter Reinhard Lunde, Asger Econometrics We propose a novel class of multivariate GARCH models that incorporate realized measures of volatility and correlations. The key innovation is an unconstrained vector parametrization of the conditional correlation matrix, which enables the use of factor models for correlations. This approach elegantly addresses the main challenge faced by multivariate GARCH models in high-dimensional settings. As an illustration, we explore block correlation matrices that naturally simplify to linear factor models for the conditional correlations. The model is applied to the returns of nine assets, and its in-sample and out-of-sample performance compares favorably against several popular benchmarks. |
| title | A Multivariate Realized GARCH Model |
| topic | Econometrics |
| url | https://arxiv.org/abs/2012.02708 |