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Empirical studies in a multivariate non-stationary, nonparametric regression model for financial returns

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  • Gürtler, Marc
  • Rauh, Ronald

Abstract

In this paper we analyze a multivariate non-stationary regression model empirically. With the knowledge about unconditional heteroscedasticty of financial returns, based on univariate studies and a congruent paradigm in Gürtler and Rauh (2009), we test for a time-varying covariance structure firstly. Based on these results, a central component of our non-stationary model is a kernel regression for pairwise covariances and the covariance matrix. Residual terms are fitted with an asymmetric Pearson type VII distribution. In an extensive study we estimate the linear dependence of a broad portfolio of equities and fixed income securities (including credit and currency risks) and fit the whole approach to provide distributional forecasts. Our evaluations verify a reasonable approximation and a satisfactory forecasting quality with an out performance against a traditional risk model.

Suggested Citation

  • Gürtler, Marc & Rauh, Ronald, 2013. "Empirical studies in a multivariate non-stationary, nonparametric regression model for financial returns," Working Papers IF43V1, Technische Universität Braunschweig, Institute of Finance.
    • Handle: RePEc:zbw:tbsifw:if43v1
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    References listed on IDEAS

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    7. Luc Bauwens & Sébastien Laurent & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109, January.
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    More about this item

    Keywords

    heteroscedasticity; non-stationarity; nonparametric regression; volatility; covariance matrix; innovation modeling; asymmetric heavy-tails; multivariate distributional forecast; empirical studies;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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