A simplified approach to modeling the co-movement of asset returns

DSpace/Manakin Repository

Open Research Exeter (ORE)

A simplified approach to modeling the co-movement of asset returns

Please use this identifier to cite or link to this item: http://hdl.handle.net/10036/48239


Title: A simplified approach to modeling the co-movement of asset returns
Author: Harris, Richard D. F.
Stoja, Evarist
Tucker, Jon
Citation: Journal of Futures Markets, Vol. 27 (6), p. 575 - 598
Journal: Journal of Futures Markets
Date Issued: 2007
URI: http://hdl.handle.net/10036/48239
DOI: 10.1002/fut.20262
Links: http://www3.interscience.wiley.com/journal/34434/home
Abstract: The authors propose a simplified multivariate GARCH (generalized autoregressive conditional heteroscedasticity) model (the S-GARCH model), which involves the estimation of only univariate GARCH models, both for the individual return series and for the sum and difference of each pair of series. The covariance between each pair of return series is then imputed from these variance estimates. The proposed model is considerably easier to estimate than existing multivariate GARCH models and does not suffer from the convergence problems that characterize many of these models. Moreover, the model can be easily extended to include more complex dynamics or alternative forms of the GARCH specification. The S-GARCH model is used to estimate the minimum-variance hedge ratio for the FTSE (Financial Times and the London Stock Exchange) 100 Index portfolio, hedged using index futures, and compared to four of the most widely used multivariate GARCH models. Using both statistical and economic evaluation criteria, it was found that the S-GARCH model performs at least as well as the other models that were considered, and in some cases it was better.
Type: Article
Description: Author's draft dated October 2004 issued as XFi working paper
Keywords: Multivariate GARCHHedgingFTSE 100 indexMinimum-variance hedge ratio
ISSN: 0270731410969934

Please note: Before reusing this item please check the rights under which it has been made available. Some items are restricted to non-commercial use. Please cite the published version where applicable.

Files in this item

Files Size Format View
0408.pdf 180.5Kb PDF Thumbnail

This item appears in the following Collection(s)


My Account

Local Links