We investigate the added value of combining density forecasts for asset return prediction in a specific region of support. We develop a new technique that takes into account model uncertainty by assigning weights to individual predictive densities using a scoring rule based on the censored...

The paper investigates the impact of jumps in forecasting co-volatility, accommodating leverage effects. We modify the jump-robust two time scale covariance estimator of Boudt and Zhang (2013)such that the estimated matrix is positive definite. Using this approach we can disentangle the...

Estimation of GARCH models can be simplified by augmenting quasi-maximum likelihood (QML) estimation with variance targeting, which reduces the degree of parameterization and facilitates estimation. We compare the two approaches and investigate, via simulations, how non-normality features of the...

We provide empirical evidence of volatility forecasting in relation to asymmetries present in the dynamics of both return and volatility processes. Using recently-developed methodologies to detect jumps from high frequency price data, we estimate the size of positive and negative jumps and...

This survey reviews the large and growing literature on the use of pair-copula constructions (PCCs) in financial applications. Using a PCC, multivariate data that exhibit complex patterns of dependence can be modeled using bivariate copulae as simple building blocks. Hence, this model represents...

We discuss several multivariate extensions of the Multiplicative Error Model to take into account dynamic interdependence and contemporaneously correlated innovations (vector MEM or vMEM). We suggest copula functions to link Gamma marginals of the innovations, in a specification where past...

In this paper we review and generalize results on the derivation of tractable non-negativity (necessary and sufficient) conditions for N-dimensional asymmetric power GARCH/HEAVY models and MEM. We show that these non-negativity constraints are translated into simple matrix inequalities, which...

In this paper, we perform analysis of systemic risk in the financial and energy sector in Europe. In our investigation, we work with daily time series of CDS spreads. We employ factor copula model with GAS dynamics of Oh and Patton (2016) for estimation purposes of dependency structures between...

The importance of the electricity sector in the growth of economies encourages the study of the variables that determine the implementation of new investment projects in the sector. The barriers in the availability of fuels result in increased uncertainty, becoming a key issue in making...

The popular scholarly exercise of evaluating exchange rate forecasting models relative to a random walk was stimulated by the well-cited Meese and Rogoff (1983) paper. Practitioners who construct quantitative models for trading exchange rates approach forecasting from a different perspective....