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Realized BEKK-CAW Models

Author

Listed:
  • Asai Manabu

    (Faculty of Economics, Soka University, Hachiōji, Japan)

  • So Mike K. P.

    (Department of Information Systems, Business Statistics and Operations Management, The Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong)

Abstract

Estimating time-varying conditional covariance matrices of financial returns play important role in portfolio analysis, risk management, and financial econometrics research. The availability of high-frequency financial data can provide an additional data source for dynamic covariance modeling. In this paper, we propose to use the information of asset return vector and realized covariance measures simultaneously to develop a new conditional covariance matrix model. We derive the stationary condition of the new model. We use the normal and Wishart distributions to construct the quasi-log-likelihood function. We also consider the variance targeting (VT) method, which plugs in the weighted average of the sample covariance matrix of returns and the sample mean of realized covariance measure for the unconditional covariance matrix, in order to maximize the quasi-log-likelihood function. We show the consistency and asymptotic normality of the quasi-maximum likelihood (QML) and VT estimators. We investigate the finite sample property of these estimators via Monte Carlo experiments. The empirical example for the bivariate data of the Nikkei 225 index and its futures indicates that the first-step VT estimation could have non-negligible effects on the standard errors of the second-step VT estimates.

Suggested Citation

  • Asai Manabu & So Mike K. P., 2023. "Realized BEKK-CAW Models," Journal of Time Series Econometrics, De Gruyter, vol. 15(1), pages 49-77, January.
  • Handle: RePEc:bpj:jtsmet:v:15:y:2023:i:1:p:49-77:n:1
    DOI: 10.1515/jtse-2022-0009
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    References listed on IDEAS

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    More about this item

    Keywords

    asymptotic theory; realized multivariate GARCH; conditional autoregressive Wishart; quasi-maximum likelihood estimation; variance targeting;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • 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

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