Unrestricted, restricted, and regularized models for forecasting multivariate volatility
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11640%2F23%3A00572656" target="_blank" >RIV/00216208:11640/23:00572656 - isvavai.cz</a>
Result on the web
<a href="https://doi.org/10.1515/snde-2021-0064" target="_blank" >https://doi.org/10.1515/snde-2021-0064</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.1515/snde-2021-0064" target="_blank" >10.1515/snde-2021-0064</a>
Alternative languages
Result language
angličtina
Original language name
Unrestricted, restricted, and regularized models for forecasting multivariate volatility
Original language description
We perform an extensive investigation of different specifications of the BEKK-type multivariate volatility models for a moderate number of assets, focusing on how the degree of parametrization affects forecasting performance. Because the unrestricted specification may be too generously parameterized, often one imposes restrictions on coefficient matrices constraining them to have a diagonal or even scalar structure. We frame all three model variations (full, diagonal, scalar) as special cases of a ridge-type regularized estimator, where the off-diagonal elements are shrunk towards zero and the diagonal elements are shrunk towards homogeneity. Our forecasting experiments with BEKK-type Conditional Autoregressive Wishart model for realized volatility confirm the superiority of the more parsimonious scalar and diagonal model variations. Even though sometimes a moderate degree of regularization of the diagonal and off-diagonal parameters may be beneficial for forecasting performance, it does not regularly lead to tangible performance improvements irrespective of how precise is tuning of regularization intensity. Additionally, our results highlight the crucial importance of frequent model re-estimation in improving the forecast precision, and, perhaps paradoxically, a slight advantage of shorter estimation windows compared to longer windows.
Czech name
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Czech description
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Classification
Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
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OECD FORD branch
50202 - Applied Economics, Econometrics
Result continuities
Project
<a href="/en/project/GA20-28055S" target="_blank" >GA20-28055S: ECONOMETRICS WITH OVERPARAMETERIZATION AND WEAK IDENTIFICATION</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)
Others
Publication year
2023
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Studies in Nonlinear Dynamics and Econometrics
ISSN
1081-1826
e-ISSN
1558-3708
Volume of the periodical
27
Issue of the periodical within the volume
2
Country of publishing house
US - UNITED STATES
Number of pages
20
Pages from-to
199-218
UT code for WoS article
000783943800001
EID of the result in the Scopus database
2-s2.0-85129236434