 Realized covariance models with time-varying parameters and spillover effectsLuc Bauwens and
Edoardo Otranto
No 3347, LIDAM Reprints 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, effect of the lagged realized covariance between each asset pair on the corresponding conditional covariance. We introduce these parameterizations in four classes of realized covariance models. In an application to the components of the Dow Jones index, we find that the extended models improve the fit of their less flexible scalar versions and show a good out-of-sample forecast performance, in particular for short forecast horizons. Keywords: Attenuation effect; forecasting; realized volatility; spillover effect; time-varying effect (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cor:louvrp:3347 DOI: 10.1177/1471082X251324273 Access Statistics for this paper More papers in LIDAM Reprints 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. |
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