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Copula-based vMEM Specifications versus Alternatives: The Case of Trading Activity

Fabrizio Cipollini (), Robert Engle and Giampiero Gallo ()

No 2017_02, Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: We discuss several multivariate extensions of the Multiplicative Error Model by Engle (2002) to take into account dynamic interdependence and contemporaneously correlated innovations (vector MEM or vMEM). We suggest copula functions to link Gamma marginals of the innovations, in a specification where past values and conditional expectations of the variables can be simultaneously estimated. Results with realized volatility, volumes and number of trades of the JNJ stock show that significantly superior realized volatility forecasts are delivered with a fully interdependent vMEM relative to a single equation. Alternatives involving log–Normal or semiparametric formulations produce substantially equivalent results.

Keywords: GARCH; MEM; Realized Volatility; Trading Volume; Trading Activity; Trades; Copula; Volatility Forecasting (search for similar items in EconPapers)
JEL-codes: C32 C51 C58 C89 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2017-04
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