Estimation and Forecasting of Dynamic Conditional Covariance: A Semiparametric Multivariate Model Variables with Econometric Applications

Xiangdong Long (), Liangjun Su and Aman Ullah
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Xiangdong Long: Judge Business School, University of Cambridge

No 200908, Working Papers from University of California at Riverside, Department of Economics

Abstract: We propose a semiparametric conditional covariance (SCC) estimator that combines the ï¬rst-stage parametric conditional covariance (PCC) estimator with the second-stage nonparametric correction estimator in a multiplicative way. We prove the asymptotic normality of our SCC estimator, propose a nonparametric test for the correct speciï¬cation of PCC models, and study its asymptotic properties. We evaluate the ï¬nite sample performance of our test and SCC estimator and compare the latter with that of PCC estimator, purely nonparametric estimator, and Hafner, Dijk, and Franses’s (2006) estimator in terms of mean squared error and Value-at-Risk losses via simulations and real data analyses.

Keywords: Conditional Covariance Matrix; Multivariate GARCH; Portfolio; Semiparametric Estimator; Speciï¬cation Test. (search for similar items in EconPapers)
JEL-codes: C3 C5 G0 (search for similar items in EconPapers)
Date: 2009-07, Revised 2009-07

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