Schmitt, Thilo A.
|Title:||Spatial dependence in stock returns - Local normalization and VaR forecasts|
|Abstract:||We analyze a recently proposed spatial autoregressive model for stock returns and compare it to a one-factor model and the sample covariance matrix. The influence of refinements to these covariance estimation methods is studied. We employ power mapping as a noise reduction technique for the correlations. Further, we address the empirically observed non-stationary behavior of stock returns. Local normalization strips the time series of changing trends and fluctuating volatilities. As an alternative method, we consider a GARCH fit. In the context of portfolio optimization, we find that the spatial model has the best match between the estimated and realized risk measures.|
|Appears in Collections:||Sonderforschungsbereich (SFB) 823|
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|DP_1813_SFB823_Schmitt_Schäfer_Wied_Guhr.pdf||DNB||300.19 kB||Adobe PDF||View/Open|
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