IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2503.01080.html
   My bibliography  Save this paper

Dynamic Factor Correlation Model

Author

Listed:
  • Chen Tong
  • Peter Reinhard Hansen

Abstract

We introduce a new dynamic factor correlation model with a novel variation-free parametrization of factor loadings. The model is applicable to high dimensions and can accommodate time-varying correlations, heterogeneous heavy-tailed distributions, and dependent idiosyncratic shocks, such as those observed in returns on stocks in the same subindustry. We apply the model to a "small universe" with 12 asset returns and to a "large universe" with 323 asset returns. The former facilitates a comprehensive empirical analysis and comparisons and the latter demonstrates the flexibility and scalability of the model.

Suggested Citation

  • Chen Tong & Peter Reinhard Hansen, 2025. "Dynamic Factor Correlation Model," Papers 2503.01080, arXiv.org.
    • Handle: RePEc:arx:papers:2503.01080
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2503.01080
    File Function: Latest version
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2503.01080. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.