Dynamic Factor Correlation Model
Fuente:
arXiv
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| Autores principales: | , |
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| Formato: | Preprint |
| Publicado: |
2025
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| Materias: | |
| Acceso en línea: | |
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| _version_ | 1866909520965402624 |
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| author | Tong, Chen Hansen, Peter Reinhard |
| author_facet | Tong, Chen Hansen, Peter Reinhard |
| contents | We introduce a new dynamic factor correlation model with a novel variation-free parametrization of factor loadings. The model is applicable to high dimensions and can accommodate time-varying correlations, heterogeneous heavy-tailed distributions, and dependent idiosyncratic shocks, such as those observed in returns on stocks in the same subindustry. We apply the model to a "small universe" with 12 asset returns and to a "large universe" with 323 asset returns. The former facilitates a comprehensive empirical analysis and comparisons and the latter demonstrates the flexibility and scalability of the model. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2503_01080 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Dynamic Factor Correlation Model Tong, Chen Hansen, Peter Reinhard Econometrics Risk Management We introduce a new dynamic factor correlation model with a novel variation-free parametrization of factor loadings. The model is applicable to high dimensions and can accommodate time-varying correlations, heterogeneous heavy-tailed distributions, and dependent idiosyncratic shocks, such as those observed in returns on stocks in the same subindustry. We apply the model to a "small universe" with 12 asset returns and to a "large universe" with 323 asset returns. The former facilitates a comprehensive empirical analysis and comparisons and the latter demonstrates the flexibility and scalability of the model. |
| title | Dynamic Factor Correlation Model |
| topic | Econometrics Risk Management |
| url | https://arxiv.org/abs/2503.01080 |