Asymmetric Models for Realized Covariances

Luc Bauwens, Emilija Dzuverovic and Christian Hafner
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Emilija Dzuverovic: Universita di Pisa
Christian Hafner: Université catholique de Louvain, LIDAM/ISBA, Belgium

No 2024024, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We introduce asymmetric effects in the BEKK-type conditional autoregressive Wishart model for realized covariance matrices. The asymmetry terms are specified either by interacting the lagged realized covariances with the signs of the lagged daily returns or by using the decomposition of the lagged realized covariance matrix into positive, negative, and mixed semi-covariances, thus relying on the lagged intra-daily returns and their signs. We provide a detailed comparison of models with different complexity, for example with respect to restrictions on the parameter matrices. In an extensive empirical study, our results suggest that the asymmetric models outperform the symmetric one in terms of statistical and economic criteria. The asymmetric models using the signs of the daily returns tend to have a better in-sample fit and out-of-sample predictive ability than the models using the signed intra-daily returns.

Keywords: High frequency data; asymmetric volatility; realized covariance; conditional autoregressive Wishart model (search for similar items in EconPapers)
Pages: 57
Date: 2024-10-08
New Economics Papers: this item is included in nep-rmg
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Working Paper: Asymmetric Models for Realized Covariances (2024)
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