Citation:
Anatolyev, Stanislav and Nikolay Gospodinov (2019) "Multivariate return decomposition: theory and implications", Econometric Reviews, vol. 38, no. 5, pp. 487-508
Abstract:
In this paper, we propose a model based on multivariate decomposition of multiplicative - absolute values and signs - components of asset returns. In the m-variate case, the marginals for the m absolute values and the binary marginals for the m directions are linked through a 2m-dimensional copula. The approach is detailed in the case of a bivariate decomposition. We outline the construction of the likelihood function and the computation of different conditional measures. The finite-sample properties of the maximum likelihood estimator are assessed by simulation. An application to predicting bond returns illustrates the usefulness of the proposed method.
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