Estimation of a Nonlinear Common Factor Model

George Richards

Journal of Economics and Econometrics, 2018, vol. 61, issue 1, 1-28

Abstract: The present paper applies a novel methodology for the estimation of nonlinear common factor models. Instead of relying on a multivariate GARCH approach, we use a new method for modelling and forecasting correlation matrices such that correlation can be driven nonlinearly by common factors. Using daily data for virtual currency we show that the adopted nonlinear common factor approach simplifies estimation in high-dimensional settings and provides more flexibility compared to factor-based methods.

Keywords: Multivariate GARCH; Nonlinear Common Factor Model. (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 (search for similar items in EconPapers)
Date: 2018
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