Forecasting comparison of long term component dynamic models for realized covariance matrices

Luc Bauwens, Manuela Braione and Giuseppe Storti

No 2014053, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Novel model specifications that include a time-varying long run component in the dynamics of realized covariance matrices are proposed. The adopted modeling framework allows the secular component to enter the model structure either in an additive fashion or as a multiplicative factor, and to be specified parametrically, using a MIDAS filter, or non-parametrically. Estimation is performed by maximizing a Wishart quasi-likelihood function. The one-step ahead forecasting performance of the models is assessed by means of three approaches: the Model Confidence Set, (global) minimum variance portfolios and Value-at-Risk. The results provide evidence in favour of the hypothesis that the proposed models outperform benchmarks incorporating a constant long run component, both in and out-of sample.

Keywords: Realized covariance; component dynamic models; MIDAS; minimum variance portfolio; Model Confidence Set; Value-at-Risk (search for similar items in EconPapers)
JEL-codes: C13 C32 C58 (search for similar items in EconPapers)
Date: 2014-11-30
New Economics Papers: this item is included in nep-ecm, nep-for and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://sites.uclouvain.be/core/publications/coredp/coredp2014.html (application/pdf)

Related works:
Journal Article: Forecasting Comparison of Long Term Component Dynamic Models for Realized Covariance Matrices (2016)
Working Paper: Forecasting comparison of long term component dynamic models for realized covariance matrices (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2014053

Access Statistics for this paper

More papers in LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().