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Forecasting Co-Volatilities via Factor Models with Asymmetry and Long Memory in Realized Covariance

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Asai, Manabu y McAleer, Michael (2014) Forecasting Co-Volatilities via Factor Models with Asymmetry and Long Memory in Realized Covariance. [ Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE); nº 05, 2014, ] (No publicado)

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URL Oficial: http://eprints.ucm.es/24797/


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Resumen

Modelling covariance structures is known to suffer from the curse of dimensionality. In order to avoid this problem for forecasting, the authors propose a new factor multivariate stochastic volatility (fMSV) model for realized covariance measures that accommodates asymmetry and long memory. Using the basic structure of the fMSV model, the authors extend the dynamic correlation MSV model, the onditional/stochastic Wishart autoregressive models, the matrix-exponential MSV model, and the Cholesky MSV model. Empirical results for 7 financial asset returns for US stock returns indicate that the new fMSV models outperform existing dynamic conditional correlation models for forecasting future covariances. Among the new fMSV models, the Cholesky MSV model with long memory and asymmetry shows stable and better forecasting performance for one-day, five-day and ten-day horizons in the periods before, during and after the global financial crisis.


Tipo de documento:Documento de trabajo o Informe técnico
Información Adicional:

JEL classifications: C32, C53, C58, G17

The authors are most grateful to Yoshi Baba for very helpful comments and suggestions. The first author
acknowledges the financial support of the Japan Ministry of Education, Culture, Sports, Science and Technology,
Japan Society for the Promotion of Science, and Australian Academy of Science. The second author is most
grateful for the financial support of the Australian Research Council, National Science Council, Taiwan, and the
Japan Society for the Promotion of Science. Address for correspondence: Faculty of Economics, Soka University,
1-236 Tangi-cho, Hachioji, Tokyo 192-8577, Japan.

Palabras clave:Dimension reduction; Factor Model; Multivariate Stochastic Volatility; Leverage Effects; Long Memory; Realized Volatility
Materias:Ciencias Sociales > Economía > Econometría
Título de serie o colección:Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)
Volumen:2014
Número:05
Código ID:24797
Depositado:25 Mar 2014 13:04
Última Modificación:02 Feb 2016 12:31

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