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Carlos Trucios, Sao Paulo School of Economics Print
Friday, 26 October 2018, 12:15 - 13:15

Carlos Trucios, Sao Paulo School of Economics

Principal volatility components: A robust approach.

Abstract : In this paper, we analyse the recent principal volatility components analysis procedure. The procedure overcomes several difficulties in modelling and forecasting the conditional covariance matrix in large dimensions arising from the curse of dimensionality. We show that outliers have a devastating effect on the construction of the principal volatility components and on the forecast of the conditional covariance matrix and consequently in economic and financial applications based on this forecast. We propose a robust procedure and analyse its finite sample properties by means of Monte Carlo experiments and also illustrate it using empirical data. The robust procedure outperforms the classical method in simulated and empirical data. 

Location: R42.2.113
Contact: Nancy De Munck - This e-mail address is being protected from spam bots, you need JavaScript enabled to view it