Multivariate High-Frequency-Based Volatility (HEAVY) Models.

Working paper

This paper introduces a new class of multivariate volatility models that utilizes high-frequency data. We discuss the models' dynamics and highlight their differences from multivariate GARCH models. We also discuss their covariance targeting speci…cation and provide closed-form formulas for multi-step forecasts. Estimation and inference strategies are outlined. Empirical results suggest that the HEAVY model outperforms the multivariate GARCH model out-of-sample, with the gains being particularly signi…cant at short forecast horizons. Forecast gains are obtained for both forecast variances and correlations.

Authors: Noureldin, D; Shephard, N; Sheppard, K

• Publisher: Nuffield College (University of Oxford)
• Series: Nuffield College Economics Working Papers
• Publication date: 2011-02-18
• Language: English