Multivariate Fractional Components Analysis

Tobias Hartl and Roland Jucknewitz

Journal of Financial Econometrics, 2023, vol. 21, issue 3, 880-914

Abstract: We propose a setup for fractionally cointegrated time series which is formulated in terms of latent integrated and short-memory components. It accommodates nonstationary processes with different fractional orders and cointegration of different strengths and is applicable in high-dimensional settings. In an application to realized covariance matrices, we find that orthogonal short- and long-memory components provide a reasonable fit and competitive out-of-sample performance compared with several competing methods.

Keywords: factor model; fractional cointegration; long memory; realized covariance matrix; state space; unobserved components (search for similar items in EconPapers)
JEL-codes: C32 C51 C53 C58 (search for similar items in EconPapers)
Date: 2023
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