Long Memory Dynamics for Multivariate Dependence under Heavy Tails

Pawel Janus, Siem Jan Koopman and Andre Lucas
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Pawel Janus: VU University Amsterdam

Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to a publication in the Journal of Empirical Finance , 2014, 29, 187-206.

We develop a new simultaneous time series model for volatility and dependence with long memory (fractionally integrated) dynamics and heavy-tailed densities. Our new multivariate model accounts for typical empirical features in financial time series while being robust to outliers or jumps in the data. In the empirical study for four Dow Jones equities, we find that the degree of memory in the volatilities of the equity return series is similar, while the degree of memory in correlations between the series varies significantly. The forecasts from our model are compared with high-frequency realised volatility and dependence measures. The forecast accuracy is overall higher compared to those from some well-known competing benchmark models.

Keywords: fractional integration; correlation; Student's t copula; time-varying dependence; multivariate volatility (search for similar items in EconPapers)
JEL-codes: C10 C22 C32 C51 (search for similar items in EconPapers)
Date: 2011-12-12
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Citations: View citations in EconPapers (5)

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Journal Article: Long memory dynamics for multivariate dependence under heavy tails (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20110175

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