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
(16)- An integrated framework for visualizing and forecasting realized covariance matrices
- A factor approach to realized volatility forecasting in the presence of finite jumps and cross-sectional correlation in pricing errors
- Large portfolio allocation based on high-dimensional regression and Kendall’s Tau
- scientific article; zbMATH DE number 7660124 (Why is no real title available?)
- Estimating and Forecasting Large Panels of Volatilities with Approximate Dynamic Factor Models
- Forecasting multivariate realized stock market volatility
- Forecasting large covariance matrix with high-frequency data using factor approach for the correlation matrix
- Forecasting co-volatilities via factor models with asymmetry and long memory in realized covariance
- Model uncertainty and forecast combination in high-dimensional multivariate volatility prediction
- Dynamic modeling of high-dimensional correlation matrices in finance
- Modeling and forecasting (un)reliable realized covariances for more reliable financial decisions
- Comparing unconstrained parametrization methods for return covariance matrix prediction
- Robust High-Dimensional Volatility Matrix Estimation for High-Frequency Factor Model
- Dynamic principal component CAW models for high-dimensional realized covariance matrices
- Modeling and forecasting realized covariance matrices with accounting for leverage
- High-dimensional covariance forecasting for short intra-day horizons
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