Department Seminars

General Information

When: Thursdays from 4:00–4:50 p.m.
Where: 1170 TMCB

Keith Vorkink
Brigham Young University
Department of Business Management

2007-09-20

Multivariate Realized Stock Market Volatility

We present a new matrix-logarithm model of the realized covariance matrix of stock returns. The model uses latent factors which are functions of both lagged volatility and returns. The model has several advantages: it is parsimonious; it does not require imposing parameter restrictions; and, it results in a positivedefinite covariance matrix. We apply the model to the covariance matrix of sizesorted stock returns and find that two factors are sufficient to capture most of the dynamics. We also introduce a new method to track an index using our model of the realized volatility covariance matrix.