IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Forecasting multivariate volatility in larger dimensions: some practical issues

  • Adam E Clements



  • Ayesha Scott



  • Annastiina Silvennoinen



The importance of covariance modelling has long been recognised in the field of portfolio management and large dimensional multivariate problems are increasingly becoming the focus of research. This paper provides a straightforward and commonsense approach toward investigating whether simpler moving average based correlation forecasting methods have equal predictive accuracy as their more complex multivariate GARCH counterparts for large dimensional problems. We find simpler forecasting techniques do provide equal (and often superior) predictive accuracy in a minimum variance sense. A portfolio allocation problem is used to compare forecasting methods. The global minimum variance portfolio and Model Confidence Set (Hansen, Lunde, and Nason (2003)) are used to compare methods, whilst portfolio weight stability and computational time are also considered.

If 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.

File URL:
Download Restriction: no

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 80.

in new window

Length: 32 pages
Date of creation: 06 Feb 2012
Date of revision:
Handle: RePEc:qut:auncer:2012_3
Contact details of provider: Phone: 07 3138 5066
Fax: 07 3138 1500
Web page:

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Eric Ghysels & Pedro Santa-Clara & Rossen Valkanov, 2004. "Predicting Volatility: Getting the Most out of Return Data Sampled at Different Frequencies," CIRANO Working Papers 2004s-19, CIRANO.
  2. Matteo Luciani & David Veredas, 2012. "A model for vast panels of volatilities," Working Papers 1230, Banco de España;Working Papers Homepage.
  3. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Adam Clements & Mark Doolan & Stan Hurn & Ralf Becker, 2009. "Evaluating multivariate volatility forecasts," NCER Working Paper Series 41, National Centre for Econometric Research, revised 25 Nov 2009.
  5. Silvennoinen, Annastiina & Teräsvirta, Timo, 2007. "Multivariate GARCH models," SSE/EFI Working Paper Series in Economics and Finance 669, Stockholm School of Economics, revised 18 Jan 2008.
  6. Massimiliano Caporin & Michael McAleer, 2010. "Ranking Multivariate GARCH Models by Problem Dimension," "Marco Fanno" Working Papers 0124, Dipartimento di Scienze Economiche "Marco Fanno".
  7. Sébastien Laurent & Jeroen V. K. Rombouts & Francesco Violante, 2012. "On the forecasting accuracy of multivariate GARCH models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(6), pages 934-955, 09.
  8. Monica Billio & Massimiliano Caporin & Michele Gobbo, 2006. "Flexible Dynamic Conditional Correlation multivariate GARCH models for asset allocation," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(2), pages 123-130, March.
  9. Peter Reinhard Hansen & Asger Lunde & James M. Nason, 2003. "Choosing the Best Volatility Models: The Model Confidence Set Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 839-861, December.
  10. 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.
  11. Roxana Chiriac & Valeri Voev, 2011. "Modelling and forecasting multivariate realized volatility," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 922-947, 09.
  12. repec:cor:louvrp:-1847 is not listed on IDEAS
  13. Susan Thorp & George Milunovich, 2007. "Symmetric Versus Asymmetric Conditional Covariance Forecasts: Does It Pay To Switch?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(3), pages 355-377.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:qut:auncer:2012_3. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (School of Economics and Finance)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.