Template-type: ReDIF-Paper 1.0
Author-Name: Diaa Noureldin
Author-Email: diaa.noureldin@economics.ox.ac.uk
Author-Workplace-Name: Dept of Economics and Oxford-Man Institute of Quantitative Finance, University of Oxford
Author-Name: Neil Shephard
Author-Email: neil.shephard@economics.ox.ac.uk
Author-Workplace-Name: Dept of Economics and Oxford-Man Institute of Quantitative Finance, University of Oxford.
Author-Name: Kevin Sheppard
Author-Email: kevin.sheppard@economics.ox.ac.uk
Author-Workplace-Name: Dept of Economics and Oxford-Man Institute of Quantitative Finance, University of Oxford.
Title: Multivariate High-Frequency-Based Volatility (HEAVY) Models
Abstract: This paper introduces a new class of multivariate volatility models that utilizes high-frequency
data. We discuss the models dynamics and highlight their di¤erences from multivariate GARCH
models. We also discuss their covariance targeting specification and provide closed-form formulas for multi-step forecasts. Estimation and inference strategies are outlined. Empirical results
suggest that the HEAVY model outperforms the multivariate GARCH model out-of-sample, with the gains being particularly significant at short forecast horizons. Forecast gains are ob-
tained for both forecast variances and correlations. 
Keywords: HEAVY model; GARCH; multivariate volatility; realized covariance; covariance targeting; multi-step forecasting; Wishart distribution.
Classification-JEL: C32; C52; C58.
Length: 41 pages
Creation-Date: 2011-02-18
Number: 2011-W01
File-URL: http://www.nuffield.ox.ac.uk/economics/papers/2011/w1/Heavy_18022011.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:1101