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Independent Factor Autoregressive Conditional Density Model

Urga, G., Ghalanos, A. and Rossi, E. (2015). Independent Factor Autoregressive Conditional Density Model. Econometric Reviews, 34(5), pp. 594-616. doi: 10.1080/07474938.2013.808561

Abstract

In this article, we propose a novel Independent Factor Autoregressive Conditional Density (IFACD) model able to generate time-varying higher moments using an independent factor setup. Our proposed framework incorporates dynamic estimation of higher comovements and feasible portfolio representation within a non-elliptical multivariate distribution. We report an empirical application, using returns data from 14 MSCI equity index iShares for the period 1996 to 2010, and we show that the IFACD model provides superior VaR forecasts and portfolio allocations with respect to the Conditionally Heteroskedastic Independent Component Analysis of Generalized Orthogonal (CHICAGO) and DCC models.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in Econometric Reviews on 10 Nov 2014, available online: http://wwww.tandfonline.com/10.1080/07474938.2013.808561
Publisher Keywords: Independent Factor Model, GO-GARCH, Independent Component Analysis, Timevarying co-moments
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/6976
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