Realized Covariance Models with Time-varying Parameters and Spillover Effects

Luc Bauwens and Edoardo Otranto ()
Additional contact information
Edoardo Otranto: Universita di Messina

No 2023019, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: A realized covariance model specifies a dynamic process for a conditional covariance matrix of daily asset returns as a function of past realized variances and covariances. We propose parsimonious parameterizations enabling a spillover effect in the conditional variance equations, and a specific nonlinear, time-varying, impact of the lagged realized covariance between each asset pair on the corresponding conditional covariance. We introduce these parameterizations in BEKK, DCC and HAR type scalar models. In an application relative to the components of the Dow Jones index, we find that the extended models improve the fit and the out-of-sample forecast performances of their less flexible scalar versions.

Keywords: Realized volatility; spillover effect; attenuation effect; time-varying parameters (search for similar items in EconPapers)
JEL-codes: C32 C58 G11 G17 (search for similar items in EconPapers)
Pages: 31
Date: 2023-07-21
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://dial.uclouvain.be/pr/boreal/en/object/bore ... tastream/PDF_01/view (application/pdf)

Related works:
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:2023019

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 ().