Ranking Multivariate GARCH Models by Problem Dimension: An Empirical Evaluation
In the last 15 years, several Multivariate GARCH (MGARCH) models have appeared in the literature. Recent research has begun to examine MGARCH specifications in terms of their out-of-sample forecasting performance. In this paper, we provide an empirical comparison of a set of models, namely BEKK, DCC, Corrected DCC (cDCC) of Aeilli (2008), CCC, Exponentially Weighted Moving Average, and covariance shrinking, using historical data of 89 US equities. Our methods follow part of the approach described in Patton and Sheppard (2009), and the paper contributes to the literature in several directions. First, we consider a wide range of models, including the recent cDCC model and covariance shrinking. Second, we use a range of tests and approaches for direct and indirect model comparison, including the Weighted Likelihood Ratio test of Amisano and Giacomini (2007). Third, we examine how the model rankings are influenced by the cross-sectional dimension of the problem.
|Keywords||MGARCH, covariance forecasting, model comparison, model confidence set, model ranking|
|JEL||Time-Series Models; Dynamic Quantile Regressions (jel C32), Model Evaluation and Testing (jel C52), Forecasting and Other Model Applications (jel C53)|
|Publisher||Erasmus School of Economics (ESE)|
|Series||Econometric Institute Research Papers|
|Journal||Report / Econometric Institute, Erasmus University Rotterdam|
Caporin, M, & McAleer, M.J. (2011). Ranking Multivariate GARCH Models by Problem Dimension: An Empirical Evaluation (No. EI 2011-18). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–41). Erasmus School of Economics (ESE). Retrieved from http://hdl.handle.net/1765/23582