Arbeitspapier
The factor-spline-GARCH model for high and low frequency correlations
We propose a new approach to model high and low frequency components of equity correlations. Our framework combines a factor asset pricing structure with other specifications capturing dynamic properties of volatilities and covariances between a single common factor and idiosyncratic returns. High frequency correlations mean revert to slowly varying functions that characterize long-term correlation patterns. We associate such term behavior with low frequency economic variables, including determinants of market and idiosyncratic volatilities. Flexibility in the time varying level of mean reversion improves the empirical fit of equity correlations in the US and correlation forecasts at long horizons.
- Language
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Englisch
- Bibliographic citation
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Series: Working Papers ; No. 2009-03
- Classification
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Wirtschaft
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Model Construction and Estimation
Forecasting Models; Simulation Methods
Portfolio Choice; Investment Decisions
Asset Pricing; Trading Volume; Bond Interest Rates
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- Subject
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Factor models
Low frequency volatilities and correlations
Dynamic conditional correlation
Spline-GARCH
Idiosyncratic volatility
Long-term correlation forecasts
- Event
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Geistige Schöpfung
- (who)
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Rangel, Jose Gonzalo
Engle, Robert F.
- Event
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Veröffentlichung
- (who)
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Banco de México
- (where)
-
Ciudad de México
- (when)
-
2009
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Rangel, Jose Gonzalo
- Engle, Robert F.
- Banco de México
Time of origin
- 2009
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