Modelling and Forecasting Multivariate Realized Volatility

Roxana Chiriac and Valeri Voev ()
Authors registered in the RePEc Author Service: Roxana Halbleib (Chiriac) ()

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper proposes a methodology for modelling time series of realized covariance matrices in order to forecast multivariate risks. The approach allows for flexible dynamic dependence patterns and guarantees positive definiteness of the resulting forecasts without imposing parameter restrictions. We provide an empirical application of the model, in which we show by means of stochastic dominance tests that the returns from an optimal portfolio based on the model’s forecasts second-order dominate returns of portfolios optimized on the basis of traditional MGARCH models. This result implies that any risk-averse investor, regardless of the type of utility function, would be better-off using our model.

Keywords: Forecasting; Fractional integration; Stochastic dominance; Portfolio optimization; Realized covariance (search for similar items in EconPapers)
JEL-codes: C32 C53 G11 (search for similar items in EconPapers)
Pages: 33
Date: 2008-09-02
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fmk, nep-for, nep-ore and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Modelling and forecasting multivariate realized volatility (2011)
Working Paper: Modelling and forecasting multivariate realized volatility (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2008-39

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