Title

Multivariate rotated ARCH models

Funding Number

RF

Funding Sponsor

Wells Fargo

Author's Department

Economics Department

Find in your Library

https://doi.org/10.1016/j.jeconom.2013.10.003

Document Type

Research Article

Publication Title

Journal of Econometrics

Publication Date

1-1-2014

doi

10.1016/j.jeconom.2013.10.003

Abstract

This paper introduces a new class of multivariate volatility models which is easy to estimate using covariance targeting, even with rich dynamics. We call them rotated ARCH (RARCH) models. The basic structure is to rotate the returns and then to fit them using a BEKK-type parameterization of the time-varying covariance whose long-run covariance is the identity matrix. This yields the rotated BEKK (RBEKK) model. The extension to DCC-type parameterizations is given, introducing the rotated DCC (RDCC) model. Inference for these models is computationally attractive, and the asymptotics are standard. The techniques are illustrated using data on the DJIA stocks. © 2013 Elsevier B.V. All rights reserved.

First Page

16

Last Page

30

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