arXiv 30 Aug 2016 · Statistics — Methodology · publishedJournal of Econometrics (2018) · 111 citations (OpenAlex)
arXiv:1608.08468 · PDF · DOI · OpenAlex · Extracted main text
We address the curse of dimensionality in dynamic covariance estimation by modeling the underlying co-volatility dynamics of a time series vector through latent time-varying stochastic factors. The use of a global-local shrinkage prior for the elements of the factor loadings matrix pulls loadings on superfluous factors towards zero. To demonstrate the merits of the proposed framework, the model is applied to simulated data as well as to daily log-returns of 300 S&P 500 members. Our approach yields precise correlation estimates, strong implied minimum variance portfolio performance and superior forecasting accuracy in terms of log predictive scores when compared to typical benchmarks.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Chib, Siddhartha, Nardari, Federico, Shephard, Neil (2006) Analysis of High Dimensional Multivariate Stochastic Volatility Models | 0.928 | 4 | 3 | 100% |
| 2 | Aguilar, Omar, West, Mike (2000) Bayesian Dynamic Factor Models and Portfolio Allocation | 0.843 | 3 | 3 | 100% |
| 3 | Griffin, J. E., Brown, P. J (2010) Inference with Normal-Gamma Prior Distributions in Regression Problems | 0.843 | 3 | 3 | 100% |
| 4 | Pitt, Michael K., Shephard, Neil, Bernardo, J. M., Berger, J. O., Da… (1999) Time-Varying Covariances: A Factor Stochastic Volatility Approach | 0.843 | 3 | 3 | 100% |
| 5 | Kastner, Gregor, Lopes, Hedibert Freitas (2017) Efficient Bayesian Inference for Multivariate Factor Stochastic Volatility Models self | 0.737 | 3 | 2 | 100% |
| 6 | Han, Y (2006) Asset Allocation with a High Dimensional Latent Factor Stochastic Volatility Model | 0.644 | 2 | 2 | 100% |
| 7 | Harvey, A. C., Ruiz, E., Shephard, N (1994) Multivariate Stochastic Variance Models | 0.644 | 2 | 2 | 100% |
| 8 | Huber, Florian, Feldkircher, Martin (2017) Adaptive Shrinkage in Bayesian Vector Autoregressive Models | 0.644 | 2 | 2 | 100% |
| 9 | Ishihara, Tsunehiro, Omori, Yasuhiro (2017) Portfolio Optimization Using Dynamic Factor and Stochastic Volatility: Evidence on Fat-Tailed Error and Leverage | 0.644 | 2 | 2 | 100% |
| 10 | Lopes, H. F., Carvalho, C. M (2007) Factor Stochastic Volatility With Time Varying Loadings and Markov Switching Regimes | 0.644 | 2 | 2 | 100% |
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