Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5097611 | Journal of Econometrics | 2006 | 36 Pages |
Abstract
In this paper, a new model to analyze the comovements in the volatilities of a portfolio is proposed. The Pure Variance Common Features model is a factor model for the conditional variances of a portfolio of assets, designed to isolate a small number of variance features that drive all assets' volatilities. It decomposes the conditional variance into a short-run idiosyncratic component (a low-order ARCH process) and a long-run component (the variance factors). An empirical example provides evidence that models with very few variance features perform well in capturing the long-run common volatilities of the equity components of the Dow Jones.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Robert F. Engle, Juri Marcucci,