Multivariate semi-nonparametric distributions with dynamic conditional correlations
AbstractThis paper generalizes the Dynamic Conditional Correlation (DCC) model of Engle (2002), incorporating a flexible non-Gaussian distribution based on Gram-Charlier expansions. The resulting semi-nonparametric-DCC (SNP-DCC) model allows estimation in two stages and deals with the negativity problem which is inherent in truncated SNP densities. We test the performance of a SNP-DCC model with respect to the (Gaussian)-DCC through an empirical application of density forecasting for portfolio returns. Our results show that the proposed multivariate model provides a better in-sample fit and forecast of the portfolio returns distribution, and thus is useful for financial risk forecasting and evaluation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Forecasting.
Volume (Year): 27 (2011)
Issue (Month): 2 (April)
Contact details of provider:
Web page: http://www.elsevier.com/locate/ijforecast
Density forecasts Financial markets GARCH models Multivariate time series Semi-nonparametric methods;
Other versions of this item:
- Del Brio, Esther B. & Ñíguez, Trino-Manuel & Perote, Javier, 2011. "Multivariate semi-nonparametric distributions with dynamic conditional correlations," International Journal of Forecasting, Elsevier, vol. 27(2), pages 347-364.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
- Engle, Robert F & Sheppard, Kevin K, 2001.
"Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH,"
University of California at San Diego, Economics Working Paper Series
qt5s2218dp, Department of Economics, UC San Diego.
- Robert F. Engle & Kevin Sheppard, 2001. "Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH," NBER Working Papers 8554, National Bureau of Economic Research, Inc.
- Ruiz, Esther & Pascual, Lorenzo, 2002. " Bootstrapping Financial Time Series," Journal of Economic Surveys, Wiley Blackwell, vol. 16(3), pages 271-300, July.
- Adrian Pagan, 1985.
"Two Stage and Related Estimators and Their Applications,"
Cowles Foundation Discussion Papers
741, Cowles Foundation for Research in Economics, Yale University.
- Pagan, Adrian, 1986. "Two Stage and Related Estimators and Their Applications," Review of Economic Studies, Wiley Blackwell, vol. 53(4), pages 517-38, August.
- Ángel León & Javier Mencía & Enrique Sentana, 2007.
"Parametric properties of semi-nonparametric distributions, with applications to option valuation,"
Banco de EspaÃÂ±a Working Papers
0707, Banco de EspaÃ±a.
- LeÃ³n, Ãngel & MencÃa, Javier & Sentana, Enrique, 2009. "Parametric Properties of Semi-Nonparametric Distributions, with Applications to Option Valuation," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(2), pages 176-192.
- Ángel León & Javier Mencía & Enrique Sentana, 2005. "Parametric Properties Of Semi-Nonparametric Distributions, With Applications To Option Valuation," Working Papers wp2005_0509, CEMFI.
- León, Ángel & Mencía, Javier & Sentana, Enrique, 2005. "Parametric Properties of Semi-Nonparametric Distributions, With Applications to Option Valuation," CEPR Discussion Papers 5435, C.E.P.R. Discussion Papers.
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Whitney K. Newey & Douglas G. Steigerwald, 1997. "Asymptotic Bias for Quasi-Maximum-Likelihood Estimators in Conditional Heteroskedasticity Models," Econometrica, Econometric Society, vol. 65(3), pages 587-600, May.
- Russell Davidson & James G. MacKinnon, 1994.
"Graphical Methods for Investigating the Size and Power of Hypothesis Tests,"
903, Queen's University, Department of Economics.
- Davidson, Russell & MacKinnon, James G, 1998. "Graphical Methods for Investigating the Size and Power of Hypothesis Tests," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(1), pages 1-26, January.
- Anthony Tay & Kenneth F. Wallis, 2000. "Density Forecasting: A Survey," Econometric Society World Congress 2000 Contributed Papers 0370, Econometric Society.
- Geweke, John & Amisano, Gianni, 2010.
"Comparing and evaluating Bayesian predictive distributions of asset returns,"
International Journal of Forecasting,
Elsevier, vol. 26(2), pages 216-230, April.
- John Geweke & Gianni Amisano, 2008. "Comparing and evaluating Bayesian predictive distributions of asset returns," Working Paper Series 969, European Central Bank.
- Fiorentini, Gabriele & Sentana, Enrique & Calzolari, Giorgio, 2003. "Maximum Likelihood Estimation and Inference in Multivariate Conditionally Heteroscedastic Dynamic Regression Models with Student t Innovations," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(4), pages 532-46, October.
- Gneiting, Tilmann & Raftery, Adrian E., 2007. "Strictly Proper Scoring Rules, Prediction, and Estimation," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 359-378, March.
- Diebold, Francis X & Gunther, Todd A & Tay, Anthony S, 1998. "Evaluating Density Forecasts with Applications to Financial Risk Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 863-83, November.
- Gianni Amisano & Raffaella Giacomini, 2005.
"Comparing Density Forecsts via Weighted Likelihood Ratio Tests,"
ubs0504, University of Brescia, Department of Economics.
- Amisano, Gianni & Giacomini, Raffaella, 2007. "Comparing Density Forecasts via Weighted Likelihood Ratio Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 177-190, April.
- Javier Perote, 2004. "The multivariate Edgeworth-Sargan density," Spanish Economic Review, Springer, vol. 6(1), pages 77-96, April.
- Esther B. Del Brio & Trino-Manuel Niguez & Javier Perote, 2009. "Gram-Charlier densities: a multivariate approach," Quantitative Finance, Taylor and Francis Journals, vol. 9(7), pages 855-868.
- Trino-Manuel Niguez & Javier Perote, 2004. "Forecasting the density of asset returns," STICERD - Econometrics Paper Series /2004/479, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Trino-Manuel Niguez & Ivan Paya & D Peel & Javier Perote, 2013. "Higher-order moments in the theory of diversification and portfolio composition," Working Papers 18297128, Lancaster University Management School, Economics Department.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.