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Simple Multivariate Conditional Covariance Dynamics Using Hyperbolically Weighted Moving Averages

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  • Kawakatsu Hiroyuki

    (Business School, Dublin City University, Dublin 9, Ireland)

Abstract

This paper considers a class of multivariate ARCH models with scalar weights. A new specification with hyperbolic weighted moving average (HWMA) is proposed as an analogue of the EWMA model. Despite the restrictive dynamics of a scalar weight model, the proposed model has a number of advantages that can deal with the curse of dimensionality. The empirical application illustrates that the (pseudo) out-of-sample multistep forecasts can be surprisingly more accurate than those from the DCC model.

Suggested Citation

  • Kawakatsu Hiroyuki, 2021. "Simple Multivariate Conditional Covariance Dynamics Using Hyperbolically Weighted Moving Averages," Journal of Econometric Methods, De Gruyter, vol. 10(1), pages 33-52, January.
    • Handle: RePEc:bpj:jecome:v:10:y:2021:i:1:p:33-52:n:7
    DOI: 10.1515/jem-2020-0004
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    References listed on IDEAS

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    More about this item

    Keywords

    multivariate GARCH; hyperbolic decay; long memory; rank-one;
    All these keywords.

    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; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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