Modelling Realized Covariances and Returns

Xin Jin () and John Maheu

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper proposes new dynamic component models of returns and realized covariance (RCOV) matrices based on time-varying Wishart distributions. Bayesian estimation and model comparison is conducted with a range of multivariate GARCH models and existing RCOV models from the literature. The main method of model comparison consists of a term-structure of density forecasts of returns for multiple forecast horizons. The new joint return-RCOV models provide superior density forecasts for returns from forecast horizons of 1 day to 3 months ahead as well as improved point forecasts for realized covariances. Global minimum variance portfolio selection is improved for forecast horizons up to 3 weeks out.

Keywords: Wishart distribution; predictive likelihoods; density forecasts; MCMC (search for similar items in EconPapers)
JEL-codes: C11 C32 C53 G17 (search for similar items in EconPapers)
Date: 2011-01
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http://www.rcea.org/RePEc/pdf/wp08_11.pdf (application/pdf)

Related works:
Journal Article: Modeling Realized Covariances and Returns (2013)
Working Paper: Modelling Realized Covariances and Returns (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:08_11

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