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Licensed Unlicensed Requires Authentication Published by De Gruyter October 7, 2020

Simple Multivariate Conditional Covariance Dynamics Using Hyperbolically Weighted Moving Averages

Hiroyuki Kawakatsu

Abstract

This paper considers a class of multivariate ARCH models with scalar weights. A new specification with hyperbolic weighted moving average (HWMA) is proposed as an analogue of the EWMA model. Despite the restrictive dynamics of a scalar weight model, the proposed model has a number of advantages that can deal with the curse of dimensionality. The empirical application illustrates that the (pseudo) out-of-sample multistep forecasts can be surprisingly more accurate than those from the DCC model.

JEL Classification: C32; C58; C51

Corresponding author: Hiroyuki Kawakatsu, Business School, Dublin City University, Dublin 9, Ireland, E-mail:

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Supplementary Material

The online version of this article offers supplementary material (https://doi.org/10.1515/jem-2020-0004).


Received: 2020-02-21
Accepted: 2020-09-17
Published Online: 2020-10-07

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