Modelling Realized Covariances

Xin Jin () and John Maheu

Working Papers from University of Toronto, Department of Economics

Abstract: This paper proposes a new dynamic model of realized covariance (RCOV) matrices based on recent work in time-varying Wishart distributions. The specifications can be linked to returns for a joint multivariate model of returns and covariance dynamics that is both easy to estimate and forecast. Realized covariance matrices are constructed for 5 stocks using high-frequency intraday prices based on positive semi-definite realized kernel estimates. We extend the model to capture the strong persistence properties in RCOV. Out-of-sample performance based on statistical and economic metrics show the importance of this. We discuss which features of the model are necessary to provide improvements over a traditional multivariate GARCH model that only uses daily returns.

Keywords: eigenvalues; dynamic conditional correlation; predictive likelihoods; MCMC (search for similar items in EconPapers)
JEL-codes: C11 C32 C53 G17 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-11-10
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-for
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-382

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