The Conditional Autoregressive Wishart Model for Multivariate Stock Market Volatility

34 Pages Posted: 13 Jun 2010 Last revised: 7 Dec 2011

See all articles by Vasyl Golosnoy

Vasyl Golosnoy

Ruhr University of Bochum

Bastian Gribisch

University of Cologne - Department of Econometrics and Statistics

Roman Liesenfeld

University of Cologne, Department of Economics

Date Written: June 8, 2010

Abstract

We propose a Conditional Autoregressive Wishart (CAW) model for the analysis of realized covariance matrices of asset returns. Our model assumes a generalized linear autoregressive moving average structure for the scale matrix of the Wishart distribution allowing to accommodate for complex dynamic interdependence between the variances and covariances of assets. In addition, it accounts for symmetry and positive definiteness of covariance matrices without imposing parametric restrictions, and can easily be estimated by Maximum Likelihood. We also propose extensions of the CAW model obtained by including a Mixed Data Sampling (MIDAS) component and Heterogeneous Autoregressive (HAR) dynamics for long-run fluctuations. The CAW models are applied to time series of daily realized variances and covariances for five New York Stock Exchange (NYSE) stocks.

Keywords: Component volatility models, Covariance matrix, Mixed data sampling, Observation-driven models, Realized volatility

JEL Classification: C32,C53

Suggested Citation

Golosnoy, Vasyl and Gribisch, Bastian and Liesenfeld, Roman, The Conditional Autoregressive Wishart Model for Multivariate Stock Market Volatility (June 8, 2010). Journal of Econometrics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1623661

Vasyl Golosnoy

Ruhr University of Bochum ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Bastian Gribisch

University of Cologne - Department of Econometrics and Statistics ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Roman Liesenfeld (Contact Author)

University of Cologne, Department of Economics ( email )

Albertus-Magnus-Platz
D-50931 Köln
Germany

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