A multivariate realized GARCH model

Ilya Archakov, Peter Hansen and Asger Lunde

Journal of Econometrics, 2026, vol. 254, issue PA

Abstract: We propose a novel class of multivariate GARCH models that incorporate realized measures of volatility and correlations. The key innovation is an unconstrained vector parametrization of the conditional correlation matrix, which enables the use of factor models for correlations. This approach elegantly addresses the main challenge faced by multivariate GARCH models in high-dimensional settings. As an illustration, we explore block correlation matrices that naturally simplify to linear factor models for the conditional correlations. The model is applied to the returns of nine assets, and its in-sample and out-of-sample performance compares favorably against several popular benchmarks.

Keywords: Multivariate GARCH; Realized measures; Correlation factor model; Block correlation matrix (search for similar items in EconPapers)
JEL-codes: C32 C58 G11 G17 (search for similar items in EconPapers)
Date: 2026
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Working Paper: A Multivariate Realized GARCH Model (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:254:y:2026:i:pa:s0304407625000946

DOI: 10.1016/j.jeconom.2025.106040

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