Modelling Realized Covariances and Returns

This paper proposes new dynamic component models of returns and realized covariance (RCOV) matrices based on time-varying Wishart distributions. Bayesian estimation and model comparison is conducted with a range of multivariate GARCH models and existing RCOV models from the literature. The main method of model comparison consists of a term-structure of density forecasts of returns for multiple forecast horizons. The new joint return-RCOV models …