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Full-Text Articles in Econometrics
Forecasting Large Covariance Matrix With High-Frequency Data: A Factor Correlation Matrix Approach, Yingjie Dong, Yiu Kuen Tse
Forecasting Large Covariance Matrix With High-Frequency Data: A Factor Correlation Matrix Approach, Yingjie Dong, Yiu Kuen Tse
Research Collection School Of Economics
We propose a factor correlation matrix approach to forecast large covariance matrix of asset returns using high-frequency data. We apply shrinkage method to estimate large correlation matrix and adopt principal component method to model the underlying latent factors. A vector autoregressive model is used to forecast the latent factors and hence the large correlation matrix. The realized variances are separately forecasted using the Heterogeneous Autoregressive model. The forecasted variances and correlations are then combined to forecast large covariance matrix. We conduct Monte Carlo studies to compare the finite sample performance of several methods of forecasting large covariance matrix. Our proposed …
Estimation Of Large Dimensional Factor Models With An Unknown Number Of Breaks, Shujie Ma, Liangjun Su
Estimation Of Large Dimensional Factor Models With An Unknown Number Of Breaks, Shujie Ma, Liangjun Su
Research Collection School Of Economics
In this paper we study the estimation of a large dimensional factor model when the factor loadingsexhibit an unknown number of changes over time. We propose a novel three-step procedure to detect the breaks if any and then identify their locations. In the first step, we divide the whole time span into subintervals and fit a conventional factor model on each interval. In the second step, we apply the adaptive fused group Lasso to identify intervals containing a break. In the third step, we devise a grid search method to estimate the location of the break on each identified interval. …