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

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

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dc.contributor.author Harris, Richard D. F. en_GB
dc.contributor.author Stoja, Evarist en_GB
dc.contributor.author Tucker, Jon en_GB
dc.contributor.department University of Exeter; Queen's University Belfast (Stoja) en_GB
dc.date.accessioned 2009-01-30T11:38:58Z en_GB
dc.date.accessioned 2011-01-25T10:28:33Z en_US
dc.date.accessioned 2013-03-20T11:11:33Z
dc.date.issued 2007 en_GB
dc.description.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. en_GB
dc.identifier.citation Journal of Futures Markets, Vol. 27 (6), p. 575 - 598 en_GB
dc.identifier.doi 10.1002/fut.20262 en_GB
dc.identifier.uri http://hdl.handle.net/10036/48239 en_GB
dc.language.iso en en_GB
dc.relation.ispartofseries Working papers en_GB
dc.relation.ispartofseries 04/08 en_GB
dc.relation.url http://www3.interscience.wiley.com/journal/34434/home en_GB
dc.subject Multivariate GARCH en_GB
dc.subject Hedging en_GB
dc.subject FTSE 100 index en_GB
dc.subject Minimum-variance hedge ratio en_GB
dc.title A simplified approach to modeling the co-movement of asset returns en_GB
dc.type Article en_GB
dc.date.available 2009-01-30T11:38:58Z en_GB
dc.date.available 2011-01-25T10:28:33Z en_US
dc.date.available 2013-03-20T11:11:33Z
dc.identifier.issn 02707314 en_GB
dc.identifier.issn 10969934 en_GB
dc.description Author's draft dated October 2004 issued as XFi working paper en_GB
dc.identifier.journal Journal of Futures Markets en_GB


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