On the Modelling and Forecasting of Multivariate Realized Volatility: Generalized Heterogeneous Autoregressive (GHAR) Model

0478479 - ÚTIA 2018 RIV US eng J - Journal Article
Čech, František - Baruník, Jozef
On the Modelling and Forecasting of Multivariate Realized Volatility: Generalized Heterogeneous Autoregressive (GHAR) Model.
Journal of Forecasting. Roč. 36, č. 1 (2017), s. 181-206. ISSN 0277-6693. E-ISSN 1099-131X
R&D Projects: GA ČR GA13-32263S
Institutional support: RVO:67985556
Keywords : Multivariate volatility * realized covariance * portfolio optimisation
OECD category: Economic Theory
Impact factor: 0.934, year: 2017
http://library.utia.cas.cz/separaty/2017/E/barunik-0478479.pdf

Recent multivariate extensions of the popular heterogeneous autoregressive model (HAR) for realized volatility leave substantial information unmodelled in residuals. We propose to employ a system of seemingly unrelated regressions to model and forecast a realized covariance matrix to capture this information. We find that the newly proposed gener- alized heterogeneous autoregressive (GHAR) model outperforms competing approaches in terms of economic gains, providing better mean–variance trade-off, while, in terms of statistical precision, GHAR is not substantially dominated by any other model. Our results provide a comprehensive comparison of the performance when realized covariance, subsampled realized covariance and multivariate realized kernel estimators are used. We study the contribution of the estimators across different sampling frequencies, and show that the multivariate realized kernel and subsampled real- ized covariance estimators deliver further gains compared to realized covariance estimated on a 5-minute frequency. In order to show economic and statistical gains, a portfolio of various sizes is used.
Permanent Link: http://hdl.handle.net/11104/0274596