Model-based vs. agnostic methods for the prediction of time-varying covariance matrices

Jean-David Fermanian (), Benjamin Poignard () and Panos Xidonas ()
Additional contact information
Jean-David Fermanian: ENSAE-CREST, Finance Department
Benjamin Poignard: Osaka University, Graduate School of Economics
Panos Xidonas: ESSCA School of Management

Annals of Operations Research, 2025, vol. 346, issue 1, No 26, 548 pages

Abstract: Abstract This article is written in memory of Harry Markowitz, the founder of modern portfolio theory. We report a few human perspectives of his character, we review a large number of his contributions, published both in operations research and finance oriented journals, and we focus on one of the most critical, and still open, portfolio theory issues, the forecast of covariance matrices. Our contribution in this paper is placed exactly towards this direction. More specifically, we compare the performances of several approaches to predict the variance-covariance matrices of vectors of asset returns, through simulated and real data experiments: some dynamic models such as Dynamic Conditional Correlation (DCC) and C-vine GARCH on one side, and several agnostic methods (Average Oracle, usual “Sample” matrix) on the other side. The most robust methods seem to be DCC and the Average Oracle approaches.

Keywords: DCC; Vines; Average Oracle; GARCH; Diebold-Mariano test (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10479-024-06238-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:346:y:2025:i:1:d:10.1007_s10479-024-06238-4

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-024-06238-4

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().