Xinxian Chen, Peter Reinhard Hansen, Chen Tong
arXiv 4 Jul 2026 · Econometrics
arXiv:2607.03669 · PDF · DOI · OpenAlex · Extracted main text
We propose the Split-Session Cluster GARCH model for heavy-tailed multivariate dependence among asset returns decomposed into overnight and intraday components. The model uses convolution-$t$ distributions to allow tail behavior to differ across clusters defined by trading sessions and, within each session, by economic sectors. It also accommodates block-structured conditional correlation matrices, preserving parsimony and scalability in high-dimensional settings. The resulting likelihood remains tractable and yields a score-driven specification for dynamic correlations. We apply the model to U.S. equity returns in six-asset and 100-asset applications. The results reveal pronounced tail heterogeneity between overnight and intraday returns. Model comparisons show that session-specific tail parameters substantially improve fit relative to a common multivariate-$t$ specification, while sector-level tail partitioning delivers additional gains concentrated mainly in the overnight component. In the 100-asset application, asset-level tail heterogeneity delivers the strongest out-of-sample likelihood and global minimum-variance (GMV) portfolio performance.
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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 | Tong, Chen and Hansen, Peter Reinhard and Archakov, Ilya Cluster GARCH self | 0.874 | 5 | 2 | 100% |
| 2 | Archakov, Ilya and Hansen, Peter Reinhard A New Parametrization of Correlation Matrices self | 0.843 | 4 | 3 | 75% |
| 3 | Creal, Drew and Koopman, Siem Jan and Lucas, André Generalized Autoregressive Score Models With Applications | 0.811 | 4 | 2 | 100% |
| 4 | Archakov, Ilya and Hansen, Peter Reinhard A Canonical Representation of Block Matrices with Applications to Covariance and Correlation Matrices self | 0.737 | 3 | 2 | 100% |
| 5 | Hansen, Peter Reinhard and Tong, Chen Convolution- t Distributions self | 0.737 | 3 | 2 | 100% |
| 6 | Aielli, Gian Piero Dynamic Conditional Correlation: On Properties and Estimation | 0.644 | 2 | 2 | 100% |
| 7 | Engle, Robert Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models | 0.644 | 2 | 2 | 100% |
| 8 | Linton, Oliver and Wu, Jianbin A Coupled Component DCS-EGARCH Model for Intraday and Overnight Volatility | 0.644 | 2 | 2 | 100% |
| 9 | Archakov, Ilya and Hansen, Peter Reinhard and Lunde, Asger A Multivariate Realized GARCH Model self | 0.405 | 1 | 1 | 100% |
| 10 | Barclay, Michael J. and Hendershott, Terrence Price Discovery and Trading After Hours | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 35 scored citations.