Template-type: ReDIF-Paper 1.0
Author-Name: Manabu Asai
Author-Email: m-asai@soka.ac.jp.
Author-Person: pas73 
Author-Workplace-Name: Faculty of Economics, Soka University
Author-Workplace-Homepage: https://www.soka.ac.jp/economics/
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Title: Forecasting Co-Volatilities via Factor Models with
 Asymmetry and Long Memory in Realized Covariance
Abstract: Modelling covariance structures is known to suffer from the curse of dimensionality. In order to avoid this problem for forecasting, the authors propose a new factor multivariate
	stochastic volatility (fMSV) model for realized covariance measures that accommodates asymmetry and long memory. Using the basic structure of the fMSV model, the authors extend the dynamic correlation MSV model, the onditional/stochastic
	Wishart autoregressive models, the matrix-exponential MSV model, and the Cholesky MSV model. Empirical results for 7 financial asset returns for US stock returns indicate
	that the new fMSV models outperform existing dynamic conditional correlation models for forecasting future covariances. Among the new fMSV models, the Cholesky
	MSV model with long memory and asymmetry shows stable and better forecasting performance for one-day, five-day and ten-day horizons in the periods before, during and
	after the global financial crisis.
Classification-JEL:  C32, C53, C58, G17
.
Keywords: Dimension reduction; Factor Model; Multivariate Stochastic Volatility; Leverage
 Effects; Long Memory; Realized Volatility.

Note: The authors are most grateful to Yoshi Baba for very helpful comments and suggestions. The first author
	acknowledges the financial support of the Japan Ministry of Education, Culture, Sports, Science and Technology,
	Japan Society for the Promotion of Science, and Australian Academy of Science. The second author is most
	grateful for the financial support of the Australian Research Council, National Science Council, Taiwan, and the
	Japan Society for the Promotion of Science. Address for correspondence: Faculty of Economics, Soka University,
	1-236 Tangi-cho, Hachioji, Tokyo 192-8577, Japan. Email address: m-asai@soka.ac.jp.
Length: 38 pages 
Creation-Date: 2014-03  
Number: 2014-05 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1405.txt
File-URL: https://eprints.ucm.es/id/eprint/24797/1/1405.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1405