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Journal article

Average conditional correlation and tree structures for multivariate GARCH models

  • Audrino, Francesco Istituto di finanza (IFin), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
  • Barone-Adesi, Giovanni Istituto di finanza (IFin), Facoltà di scienze economiche, Università della Svizzera italiana, Svizzera
    2006
Published in:
  • Journal of forecasting. - John Wiley & Sons. - 2006, vol. 25, no. 8, p. 579–600
Multivariate GARCH models
dynamic conditional correlations
tree- structured GARCH models
model confidence set approach
English We propose a simple class of multivariate GARCH models, allowing for time-varying conditional correlations. Estimates for time-varying conditional correlations are constructed by means of a convex combination of averaged correlations (across all series) and dynamic realized (historical) correlations. Our model is very parsimonious. Estimation is computationally feasible in very large dimensions without resorting to any variance reduction technique. We back-test the models on a six-dimensional exchange-rate time series using different goodness-of-fit criteria and statistical tests. We collect empirical evidence of their strong predictive power, also in comparison to alternative benchmark procedures.
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  • English
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Economics
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https://n2t.net/ark:/12658/srd1318135
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