Synchronizing Multivariate Financial Time Series
Francesco Audrino and Peter Bühlmann
May 2001
Abstract
Prices or returns of financial assets are most often collected in
local times of the trading markets. The need to synchronize multivariate
time series of financial prices or returns is motivated by the fact that
information continues to flow for closed markets while others are still
open. We propose here a synchronization technique which takes this into
account.
Besides the nice interpretation of synchronization, the method potentially
increases the predictive performance of any reasonable model. We found
empirically that this was the case for the CCC-GARCH(1,1) model for a
7-dimensional time series of daily exchange rate returns. Since
multivariate analysis is generally important for analyzing time-changing
portfolios and for better portfolio predictions (even when portfolio weights are
time-constant), synchronization is a valuable technique
for a variety of problems with multivariate financial data.
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