A Stochastic Variance Factor Model for Large Datasets and an Application to S&P Data
AbstractThe aim of this paper is to consider multivariate stochastic volatility models for large dimensional datasets. We suggest use of the principal component methodology of Stock and Watson (2002) for the stochastic volatility factor model discussed by Harvey, Ruiz, and Shephard (1994). The method is simple and computationally tractable for very large datasets. We provide theoretical results on this method and apply it to S&P data.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 506.
Date of creation: Feb 2004
Date of revision:
Note: A revised version is available at the personal homepage of George Kapetanios .
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Stochastic volatility; Factor models; Principal components;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-15 (All new papers)
- NEP-CFN-2004-02-15 (Corporate Finance)
- NEP-ECM-2004-02-20 (Econometrics)
- NEP-FIN-2004-02-15 (Finance)
- NEP-FMK-2004-02-15 (Financial Markets)
- NEP-RMG-2004-02-15 (Risk Management)
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- Mónica Fuentes & Sergio Godoy, 2005. "Sovereign Spread in Emerging Markets: A Principal Component Analysis," Working Papers Central Bank of Chile 333, Central Bank of Chile.
- Silvia S.W. Lui, 2006. "An Empirical Study of Asian Stock Volatility Using Stochastic Volatility Factor Model: Factor Analysis and Forecasting," Working Papers 581, Queen Mary, University of London, School of Economics and Finance.
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