Independent Factor Autoregressive Conditional Density Model

Alexios Ghalanos (), Eduardo Rossi and Giovanni Urga
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Alexios Ghalanos: Faculty of Finance, Cass Business School

No 21, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: In this paper, we propose a novel Independent Factor Autoregressive Conditional Density (IFACD) model able to generate time-varying higher moments using an independent factor setup. Our proposed framework incorporates dynamic estimation of higher comovements and feasible portfolio representation within a non elliptical multivariate distribution. We report an empirical application, using returns data from 14 MSCI equity index iShares for the period 1996 to 2011, and we show that the IFACD model provides superior VaR forecasts and portfolio allocations with respect to the CHICAGO and DCC models.

Keywords: Independent Factor Model; GO-GARCH; Independent Component Analysis; Timevarying Co-moments (search for similar items in EconPapers)
JEL-codes: C13 C16 C32 G11 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-11
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-for and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:021

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