Forecasting high-dimensional realized volatility matrices using a factor model
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Abstract: Modeling and forecasting covariance matrices of asset returns play a crucial role in finance. The availability of high frequency intraday data enables the modeling of the realized covariance matrix directly. However, most models in the literature suffer from the curse of dimensionality. To solve the problem, we propose a factor model with a diagonal CAW model for the factor realized covariance matrices. Asymptotic theory is derived for the estimated parameters. In an extensive empirical analysis, we find that the number of parameters can be reduced significantly. Furthermore, the proposed model maintains a comparable performance with a benchmark vector autoregressive model.
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Cited in
(18)- Modeling and forecasting (un)reliable realized covariances for more reliable financial decisions
- Unrestricted maximum likelihood estimation of multivariate realized volatility models
- Comparing unconstrained parametrization methods for return covariance matrix prediction
- Forecasting large covariance matrix with high-frequency data using factor approach for the correlation matrix
- A factor approach to realized volatility forecasting in the presence of finite jumps and cross-sectional correlation in pricing errors
- High-dimensional covariance forecasting for short intra-day horizons
- Dynamic modeling of high-dimensional correlation matrices in finance
- Robust High-Dimensional Volatility Matrix Estimation for High-Frequency Factor Model
- Model uncertainty and forecast combination in high-dimensional multivariate volatility prediction
- Estimating and Forecasting Large Panels of Volatilities with Approximate Dynamic Factor Models
- Dynamic principal component CAW models for high-dimensional realized covariance matrices
- Modeling and forecasting realized covariance matrices with accounting for leverage
- Time series models for realized covariance matrices based on the matrix-F distribution
- scientific article; zbMATH DE number 7660124 (Why is no real title available?)
- Large portfolio allocation based on high-dimensional regression and Kendall’s Tau
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- An integrated framework for visualizing and forecasting realized covariance matrices
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