Modeling Realized Covariances and Returns

Xin Jin () and John Maheu

Journal of Financial Econometrics, 2013, vol. 11, issue 2, 335-369

Abstract: This article proposes new dynamic component models of returns and realized covariance (RCOV) matrices based on time-varying Wishart distributions. Bayesian estimation and model comparison is conducted with a range of multivariate GARCH models and existing RCOV models from the literature. The main method of model comparison consists of a term-structure of density forecasts of returns for multiple forecast horizons. The new joint return-RCOV models provide superior density forecasts for returns from forecast horizons of 1 day to 3 months ahead as well as improved point forecasts for realized covariances. Global minimum variance portfolio selection is improved for forecast horizons up to 3 weeks out. Copyright , Oxford University Press.

Date: 2013
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Working Paper: Modelling Realized Covariances and Returns (2012)
Working Paper: Modelling Realized Covariances and Returns (2011)
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