Multivariate ARCH with spatial effects for stock sector and size

Massimiliano Caporin and Paolo Paruolo

Economics and Quantitative Methods from Department of Economics, University of Insubria

Abstract: This paper applies a new spatial approach for the specfication of multivariate GARCH models, called Spatial Effects in ARCH, SEARCH. We consider spatial dependence associated with industrial sectors and capitalization size. This parametrization extends current feasible specifications for large scale GARCH models, keeping the numbers of parameters linear as a function of the number of assets. An application to daily returns on 150 stocks from the NYSE for the period January 1994 to June 2001 shows the benefits of the present specification when compared to alternative specifications.

Keywords: Spatial models; GARCH; Volatility; Large scale models; Portfolio allocation. (search for similar items in EconPapers)
Pages: 41 pages
Date: 2005-12
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fmk and nep-geo
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ins:quaeco:qf0509

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