Dynamic Density Forecasts for Multivariate Asset Returns
We 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.
|Date of creation:||Sep 2009|
|Date of revision:|
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