Volatility Comovement: A Multifrequency Approach / Laurent E. Calvet, Adlai J. Fisher, Samuel B. Thompson.

Format:

Book

Author/Creator:

Calvet, Laurent E.

Contributor:

National Bureau of Economic Research.

Fisher, Adlai J.

Thompson, Samuel B.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0300.

NBER technical working paper series no. t0300

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Volatility Comovement

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

We implement a multifrequency volatility decomposition of three exchange rates and show that components with similar durations are strongly correlated across series. This motivates a bivariate extension of the Markov-Switching Multifractal (MSM) introduced in Calvet and Fisher (2001, 2004). Bivariate MSM is a stochastic volatility model with a closed-form likelihood. Estimation can proceed by ML for state spaces of moderate size, and by simulated likelihood via a particle filter in high-dimensional cases. We estimate the model and confirm its main assumptions in likelihood ratio tests. Bivariate MSM compares favorably to a standard multivariate GARCH both in- and out-of-sample. We extend the model to multivariate settings with a potentially large number of assets by proposing a parsimonious multifrequency factor structure.

Notes:

Print version record

August 2004.