Modelling multivariate volatilities via conditionally uncorrelated components

Jianqing Fan, Mingjin Wang and Qiwei Yao

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We propose to model multivariate volatility processes on the basis of the newly defined conditionally uncorrelated components (CUCs). This model represents a parsimonious representation for matrix-valued processes. It is flexible in the sense that each CUC may be fitted separately with any appropriate univariate volatility model. Computationally it splits one high dimensional optimization problem into several lower dimensional subproblems. Consistency for the estimated CUCs has been established. A bootstrap method is proposed for testing the existence of CUCs. The methodology proposed is illustrated with both simulated and real data sets.

Keywords: bootstrap test; causality in variance; dimension reduction; extended GARCH(1; 1) model; financial returns; portfolio volatility; quasi-maximum-likelihood estimator; time series (search for similar items in EconPapers)
JEL-codes: C1 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (28)

Published in Journal of the Royal Statistical Society. Series B: Statistical Methodology, 2008, 70(4), pp. 679-702. ISSN: 1369-7412

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Journal Article: Modelling multivariate volatilities via conditionally uncorrelated components (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:22875

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