Dynamic Density Forecasts for Multivariate Asset Returns
AbstractWe propose a simple and flexible framework for forecasting the joint density of asset returns. The multinormal distribution is augmented with a polynomial in (time-varying) non-central co-moments of assets. We estimate the coefficients of the polynomial via the Method of Moments for a carefully selected set of co-moments. In an extensive empirical study, we compare the proposed model with a range of other models widely used in the literature. Employing a recently proposed technique to evaluate multivariate forecasts, we conclude that the augmented joint density provides highly accurate forecasts of the negative tail of the joint distribution.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 09/616.
Length: 27 pages
Date of creation: Sep 2009
Date of revision:
Time-varying higher co-moments; Joint Density Forecasting; Method of Moments; Multivariate Value-at-Risk.;
Other versions of this item:
- Arnold Polanski & Evarist Stoja, 2011. "Dynamic density forecasts for multivariate asset returns," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 30(6), pages 523-540, September.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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