Starjournal Quotation Kastner, Gregor. 2019. Sparse Bayesian Time-Varying Covariance Estimation in Many Dimensions. Journal of Econometrics. 210 (1), 98-115.




We address the curse of dimensionality in dynamic covariance estimation by modeling the underlying co-volatility dynamics of a time series vector through latent time-varying stochastic factors. The use of a global-local shrinkage prior for the elements of the factor loadings matrix pulls loadings on superfluous factors towards zero. To demonstrate the merits of the proposed framework, the model is applied to simulated data as well as to daily log-returns of 300 S&P 500 members. Our approach yields precise correlation estimates, strong implied minimum variance portfolio performance and superior forecasting accuracy in terms of log predictive scores when compared to typical benchmarks.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Econometrics
Citation Index SSCI
WU Journalrating 2009 A+
Starjournal Y
Language English
Title Sparse Bayesian Time-Varying Covariance Estimation in Many Dimensions
Volume 210
Number 1
Year 2019
Page from 98
Page to 115
Reviewed? Y
Open Access Y
Open Access Link
JEL C32; C38; C53; C58; G11


Kastner, Gregor (Details)
Institute for Statistics and Mathematics IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
1105 Computer software (Details)
1162 Statistics (Details)
5323 Econometrics (Details)
5701 Applied statistics (Details)
5707 Time series analysis (Details)
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