Independent Factor Autoregressive Conditional Density Model

Alexios Ghalanos, Eduardo Rossi and Giovanni Urga

Econometric Reviews, 2015, vol. 34, issue 5, 594-616

Abstract: In this article, we propose a novel Independent Factor Autoregressive Conditional Density (IFACD) model able to generate time-varying higher moments using an independent factor setup. Our proposed framework incorporates dynamic estimation of higher comovements and feasible portfolio representation within a non-elliptical multivariate distribution. We report an empirical application, using returns data from 14 MSCI equity index iShares for the period 1996 to 2010, and we show that the IFACD model provides superior VaR forecasts and portfolio allocations with respect to the Conditionally Heteroskedastic Independent Component Analysis of Generalized Orthogonal (CHICAGO) and DCC models.

Date: 2015
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Citations: View citations in EconPapers (17)

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Working Paper: Independent Factor Autoregressive Conditional Density Model (2012)
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DOI: 10.1080/07474938.2013.808561

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