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Non-homogeneous volatility correlations in the bivariate multifractal model

Liu, Ruipeng and Lux, Thomas 2015, Non-homogeneous volatility correlations in the bivariate multifractal model, European journal of finance, vol. 21, no. 12, pp. 971-991, doi: 10.1080/1351847X.2014.897960.

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Title Non-homogeneous volatility correlations in the bivariate multifractal model
Author(s) Liu, Ruipeng
Lux, Thomas
Journal name European journal of finance
Volume number 21
Issue number 12
Start page 971
End page 991
Total pages 21
Publisher Taylor and Francis
Place of publication London, Eng.
Publication date 2015
ISSN 1351-847X
1466-4364
Keyword(s) long memory
multifractal models
simulation-based inference
value-at-risk
Summary In this paper, we consider an extension of the recently proposed bivariate Markov-switching multifractal model of Calvet, Fisher, and Thompson [2006. "Volatility Comovement: A Multifrequency Approach." Journal of Econometrics {131}: 179-215]. In particular, we allow correlations between volatility components to be non-homogeneous with two different parameters governing the volatility correlations at high and low frequencies. Specification tests confirm the added explanatory value of this specification. In order to explore its practical performance, we apply the model for computing value-at-risk statistics for different classes of financial assets and compare the results with the baseline, homogeneous bivariate multifractal model and the bivariate DCC-GARCH of Engle [2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models." Journal of Business & Economic Statistics 20 (3): 339-350]. As it turns out, the multifractal model with heterogeneous volatility correlations provides more reliable results than both the homogeneous benchmark and the DCC-GARCH model. © 2014 Taylor & Francis.
Language eng
DOI 10.1080/1351847X.2014.897960
Field of Research 150205 Investment and Risk Management
Socio Economic Objective 900102 Investment Services (excl. Superannuation)
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
HERDC collection year 2014
Copyright notice ©2014, Taylor & Francis
Persistent URL http://hdl.handle.net/10536/DRO/DU:30068059

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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