A Multivariate Kernel Approach to Forecasting the Variance Covariance of Stock Market Returns

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This paper introduces a multivariate kernel based forecasting tool for the prediction of variance-covariance matrices of stock returns. The method introduced allows for the incorporation of macroeconomic variables into the forecasting process of the matrix without resorting to a decomposition of the matrix. The model makes use of similarity forecasting techniques and it is demonstrated that several popular techniques can be thought as a subset of this approach. A forecasting experiment demonstrates the potential for the technique to improve the statistical accuracy of forecasts of variance-covariance matrices.

Bibliographical metadata

Original languageEnglish
Number of pages27
Issue number1
Early online date17 Feb 2018
Publication statusPublished - 2018