Large dynamic covariance matrices and portfolio selection with a heterogeneous autoregressive model

IF 3.6 2区 经济学 Q1 BUSINESS, FINANCE
Igor Honig, Felix Kircher
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引用次数: 0

Abstract

We propose a novel framework for modeling large dynamic covariance matrices via heterogeneous autoregressive volatility and correlation components. Our model provides direct forecasts of monthly covariance matrices and is flexible, parsimonious and simple to estimate using standard least squares methods. We address the problem of parameter estimation risks by employing nonlinear shrinkage methods, making our framework applicable in high dimensions. We perform a comprehensive empirical out-of-sample analysis and find significant statistical and economic improvements over common benchmark models. For minimum variance portfolios with over a thousand stocks, the annualized portfolio standard deviation improves to 8.92% compared to 9.75–10.43% for DCC-type models.
大动态协方差矩阵与异质自回归模型的投资组合选择
我们提出了一种新的框架,通过异构自回归波动率和相关成分来建模大型动态协方差矩阵。我们的模型提供了月度协方差矩阵的直接预测,并且使用标准最小二乘法进行估计是灵活、简洁和简单的。我们通过采用非线性收缩方法来解决参数估计风险的问题,使我们的框架适用于高维。我们进行了全面的实证样本外分析,发现与普通基准模型相比,有显著的统计和经济改进。对于超过1000只股票的最小方差组合,年化投资组合标准差提高到8.92%,而dcc模型的年化投资组合标准差为9.75-10.43%。
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来源期刊
CiteScore
6.40
自引率
5.40%
发文量
262
期刊介绍: The Journal of Banking and Finance (JBF) publishes theoretical and empirical research papers spanning all the major research fields in finance and banking. The aim of the Journal of Banking and Finance is to provide an outlet for the increasing flow of scholarly research concerning financial institutions and the money and capital markets within which they function. The Journal''s emphasis is on theoretical developments and their implementation, empirical, applied, and policy-oriented research in banking and other domestic and international financial institutions and markets. The Journal''s purpose is to improve communications between, and within, the academic and other research communities and policymakers and operational decision makers at financial institutions - private and public, national and international, and their regulators. The Journal is one of the largest Finance journals, with approximately 1500 new submissions per year, mainly in the following areas: Asset Management; Asset Pricing; Banking (Efficiency, Regulation, Risk Management, Solvency); Behavioural Finance; Capital Structure; Corporate Finance; Corporate Governance; Derivative Pricing and Hedging; Distribution Forecasting with Financial Applications; Entrepreneurial Finance; Empirical Finance; Financial Economics; Financial Markets (Alternative, Bonds, Currency, Commodity, Derivatives, Equity, Energy, Real Estate); FinTech; Fund Management; General Equilibrium Models; High-Frequency Trading; Intermediation; International Finance; Hedge Funds; Investments; Liquidity; Market Efficiency; Market Microstructure; Mergers and Acquisitions; Networks; Performance Analysis; Political Risk; Portfolio Optimization; Regulation of Financial Markets and Institutions; Risk Management and Analysis; Systemic Risk; Term Structure Models; Venture Capital.
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