Large‐scale volatility models: theoretical properties of professionals’ practice

Paolo Zaffaroni

Journal of Time Series Analysis, 2008, vol. 29, issue 3, 581-599

Abstract: Abstract. This article examines the way in which GARCH models are estimated and used for forecasting by practitioners in particular using the highly popular RiskmetricsTM approach. Although it permits sizable computational gains and provide a simple way to impose positive semi‐definitiveness of multivariate version of the model, we show that this approach delivers non‐consistent parameter’ estimates. The novel theoretical result is corroborated by a set of Monte Carlo exercises. A set of empirical applications suggest that this could cause, in general, unreliable forecasts of conditional volatilities and correlations.

Date: 2008
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Citations: View citations in EconPapers (8)

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https://doi.org/10.1111/j.1467-9892.2007.00571.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jtsera:v:29:y:2008:i:3:p:581-599

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