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Multivariate return decomposition: theory and implications

Stanislav Anatolyev () and Nikolay Gospodinov ()

No 2015-7, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: In this paper, we propose a model based on multivariate decomposition of multiplicative?absolute values and signs?components of several returns. In the m-variate case, the marginals for the m absolute values and the binary marginals for the m directions are linked through a 2m-dimensional copula. The approach is detailed in the case of a bivariate decomposition. We outline the construction of the likelihood function and the computation of different conditional measures. The finite-sample properties of the maximum likelihood estimator are assessed by simulation. An application to predicting bond returns illustrates the usefulness of the proposed method.

Keywords: multivariate decomposition; multiplicative components; volatility and direction models; copula; dependence (search for similar items in EconPapers)
JEL-codes: C13 C32 C51 G12 (search for similar items in EconPapers)
Date: 2015-08-01
New Economics Papers: this item is included in nep-ecm
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Journal Article: Multivariate Return Decomposition: Theory and Implications (2019) Downloads
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