Title

Estimation of Dynamic Conditional Covariance: A Semiparametric Multivariate Model

Publication Type

Journal Article

Publication Date

2011

Abstract

We propose a semiparametric conditional covariance (SCC) estimator that combines the first-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 specification of PCC models, and study its asymptotic properties. We evaluate the finite 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.

Keywords

Conditional Covariance Matrix, Multivariate GARCH, Portfolio, Semiparametric Estimator, Specification Test.

Discipline

Econometrics | Multivariate Analysis

Research Areas

Econometrics

Publication

Journal of Business and Economic Statistics

Volume

29

First Page

109

Last Page

125

ISSN

0735-0015

Identifier

10.1198/jbes.2009.07057.

Publisher

Taylor and Francis

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1198/jbes.2009.07057.

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