Multivariate dynamic mixed-frequency density pooling for financial forecasting
This article investigates the benefits of combining information available from daily and intraday data in financial return forecasting. The two data sources are combined via a density pooling approach, wherein the individual densities are represented as a copula function, and the potentially time-varying pooling weights depend on the forecasting performance of each model. The dependence structure in the daily frequency case is extracted from a standard static and dynamic conditional covariance modeling, and the high-frequency counterpart is based on a realized covariance measure. We find that incorporating both high- and low-frequency information via density pooling provides significant gains in predictive model performance over any individual model and any model combination within the same data frequency. A portfolio allocation exercise quantifies the economic gains by producing investment portfolios with the smallest variance and highest Sharpe ratio.
Authors
- Martina Danielova Zaharieva (ORCID: https://orcid.org/0000-0002-5776-7013)
- Hedibert F. Lopes (ORCID: https://orcid.org/0000-0002-8429-0353)
- Audronė Virbickaitė (ORCID: https://orcid.org/0000-0002-7117-6906)
Institutions
- Centro de Estudios Monetarios y Financieros (ES)
- Insper (BR)
Publication Details
- Journal
- International Journal of Forecasting
- Published
- 2024-12-25
- DOI
- https://doi.org/10.1016/j.ijforecast.2024.11.011
- Citations
- 1
- Primary Topic
- Financial Risk and Volatility Modeling
- Type
- article
- Field-Weighted Citation Impact
- 0.54
Funders
- Ministerio de Ciencia, Innovación y Universidades
- Fundação de Amparo à Pesquisa do Estado de São Paulo
- Ministerio de Ciencia e Innovación
- Agencia Estatal de Investigación