A1217
Title: Common features in volatilities: A new multiplicative error model
Authors: Edoardo Otranto - Sapienza University of Rome (Italy)
Luca Scaffidi Domianello - University of Catania (Italy) [presenting]
Abstract: Multivariate volatility models could consider the influence of each volatility series on the others (spillover effects). Furthermore, integrating financial markets provides similar dynamics (co-movements). The aim is to propose a new model for volatility vectors, belonging to the family of multiplicative error models (MEMs), which incorporates spillover and co-movement effects captured through a separate unobservable component. Moreover, to reduce the number of coefficients for high-dimensional datasets, a simple model-based clustering procedure is proposed. The model is applied to a set of 29 assets included in the Dow Jones Industrial Index, providing insights into the interpretation of spillover effects and co-movement. The adopted parametrization shows a satisfactory performance when compared to other vector MEMs.
