Estimate of a volatility's common component in ARSV models: a simulation study

Abstract

This paper offers a new estimator of volatility's common component of a return. This estimator is obtained by applying a procedure based on the generalized dynamic factor model to the observations on squared returns. A Monte–Carlo study is conducted to evaluate the performance of the proposed estimator.

Keywords:

• Common component
• generalized dynamic factor model
• Monte–Carlo experiment
• returns
• volatility

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Surveys on the properties of ARSV models are given by [3–5]

2 See [1] for technical details.