Fitting vast dimensional time-varying covariance models

Neil Shephard (), Kevin Sheppard () and Robert Engle

No 403, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Building models for high dimensional portfolios is important in risk management and asset allocation. Here we propose a novel and fast way of estimating models of time-varying covariances that overcome an undiagnosed incidental parameter problem which has troubled existing methods when applied to hundreds or even thousands of assets. Indeed we can handle the case where the cross-sectional dimension is larger than the time series one. The theory of this new strategy is developed in some detail, allowing formal hypothesis testing to be carried out on these models. Simulations are used to explore the performance of this inference strategy while empirical examples are reported which show the strength of this method. The out of sample hedging performance of various models estimated using this method are compared.

Keywords: ARCH Models; Composite Likelilhood; Dynamic Conditional Correlations; Incidental Parameters; Quasi-Likelihood; Time-Varying Covariances (search for similar items in EconPapers)
JEL-codes: C01 C14 C32 (search for similar items in EconPapers)
Date: 2008-09-01
New Economics Papers: this item is included in nep-ets, nep-ore and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (135)

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:b4135fbb-f814-4913-b874-73e103574365 (text/html)

Related works:
Journal Article: Fitting Vast Dimensional Time-Varying Covariance Models (2021)
Working Paper: Fitting vast dimensional time-varying covariance models (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:403

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).