Hierarchical DCC-HEAVY Model for High-Dimensional Covariance Matrices
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arXiv
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| Format: | Preprint |
| Published: |
2023
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| _version_ | 1866913431580311552 |
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| author | Dzuverovic, Emilija Barigozzi, Matteo |
| author_facet | Dzuverovic, Emilija Barigozzi, Matteo |
| contents | We introduce a HD DCC-HEAVY class of hierarchical-type factor models for high-dimensional covariance matrices, employing the realized measures built from higher-frequency data. The modelling approach features straightforward estimation and forecasting schemes, independent of the cross-sectional dimension of the assets under consideration, and accounts for sophisticated asymmetric dynamics in the covariances. Empirical analyses suggest that the HD DCC-HEAVY models have a better in-sample fit and deliver statistically and economically significant out-of-sample gains relative to the existing hierarchical factor model and standard benchmarks. The results are robust under different frequencies and market conditions. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2305_08488 |
| institution | arXiv |
| publishDate | 2023 |
| record_format | arxiv |
| spellingShingle | Hierarchical DCC-HEAVY Model for High-Dimensional Covariance Matrices Dzuverovic, Emilija Barigozzi, Matteo Econometrics We introduce a HD DCC-HEAVY class of hierarchical-type factor models for high-dimensional covariance matrices, employing the realized measures built from higher-frequency data. The modelling approach features straightforward estimation and forecasting schemes, independent of the cross-sectional dimension of the assets under consideration, and accounts for sophisticated asymmetric dynamics in the covariances. Empirical analyses suggest that the HD DCC-HEAVY models have a better in-sample fit and deliver statistically and economically significant out-of-sample gains relative to the existing hierarchical factor model and standard benchmarks. The results are robust under different frequencies and market conditions. |
| title | Hierarchical DCC-HEAVY Model for High-Dimensional Covariance Matrices |
| topic | Econometrics |
| url | https://arxiv.org/abs/2305.08488 |