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Estimation and Forecasting of Dynamic Conditional Covariance: A Semiparametric Multivariate Model Variables with Econometric Applications

Author

Listed:
  • Xiangdong Long

    (Judge Business School, University of Cambridge)

  • Liangjun Su

    (School of Economics, Singapore Management University)

  • Aman Ullah

    (Department of Economics, University of California Riverside)

Abstract

We propose a semiparametric conditional covariance (SCC) estimator that combines the ï¬ rst-stage parametric conditional covariance (PCC) estimator with the second-stage nonparametric correction estimator in a multiplicative way. We prove the asymptotic normality of our SCC estimator, propose a nonparametric test for the correct speciï¬ cation of PCC models, and study its asymptotic properties. We evaluate the ï¬ nite sample performance of our test and SCC estimator and compare the latter with that of PCC estimator, purely nonparametric estimator, and Hafner, Dijk, and Franses’s (2006) estimator in terms of mean squared error and Value-at-Risk losses via simulations and real data analyses.

Suggested Citation

  • Xiangdong Long & Liangjun Su & Aman Ullah, 2009. "Estimation and Forecasting of Dynamic Conditional Covariance: A Semiparametric Multivariate Model Variables with Econometric Applications," Working Papers 200908, University of California at Riverside, Department of Economics, revised Jul 2009.
    • Handle: RePEc:ucr:wpaper:200908
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    File URL: https://economics.ucr.edu/repec/ucr/wpaper/09-08.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Matteo Barigozzi & Christian T. Brownlees & Giampiero M. Gallo & David Veredas, 2010. "Disentangling Systematic and Idiosyncratic Risk for Large Panels of Assets," Econometrics Working Papers Archive wp2010_06, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
    2. Serra, Teresa, 2011. "Volatility spillovers between food and energy markets: A semiparametric approach," Energy Economics, Elsevier, vol. 33(6), pages 1155-1164.

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    More about this item

    Keywords

    Conditional Covariance Matrix; Multivariate GARCH; Portfolio; Semiparametric Estimator; Speciï¬ cation Test.;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G0 - Financial Economics - - General

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