Abstract
The complexity of multivariate time series models increases dramatically when the number of component series increases. This is a phenomenon observed in both low- and high-frequency financial data analysis. In this paper, we develop a regularization framework for multivariate time series models based on the penalized likelihood method. We show that, under certain conditions, the regularized estimators are sparse-consistent and satisfy an asymptotic normality. This framework provides a theoretical foundation for addressing the curse of dimensionality in multivariate econometric models. We illustrate the utility of our method by developing a sparse version of the full-factor multivariate GARCH model. We successfully apply this model to simulated data as well as the minute returns of the Dow Jones industrial average component stocks.