Economics at your fingertips  

The Factor-Spline-GARCH Model for High and Low Frequency Correlations

Jose Rangel () and Robert Engle

No 2009-03, Working Papers from Banco de México

Abstract: We propose a new approach to model high and low frequency components of equity correlations. Our framework combines a factor asset pricing structure with other specifications capturing dynamic properties of volatilities and covariances between a single common factor and idiosyncratic returns. High frequency correlations mean revert to slowly varying functions that characterize long-term correlation patterns. We associate such term behavior with low frequency economic variables, including determinants of market and idiosyncratic volatilities. Flexibility in the time varying level of mean reversion improves the empirical fit of equity correlations in the US and correlation forecasts at long horizons.

JEL-codes: C22 C32 C51 C53 G11 G12 G32 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link) ... -D29FA752A922%7D.pdf (application/pdf)

Related works:
Journal Article: The Factor–Spline–GARCH Model for High and Low Frequency Correlations (2012) Downloads
Journal Article: The Factor--Spline--GARCH Model for High and Low Frequency Correlations (2011) Downloads
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:

Access Statistics for this paper

More papers in Working Papers from Banco de México Contact information at EDIRC.
Bibliographic data for series maintained by Subgerencia de desarrollo de sistemas ().

Page updated 2024-04-05
Handle: RePEc:bdm:wpaper:2009-03