Estimating time-varying variances and covariances via nearest neighbour multivariate predictions: Applications to the NYSE and the Madrid stock exchange index

Abstract

In this article, we present a technique to obtain the time-varying covariance matrix for several time series for nearest neighbour predictors. To illustrate the use of this technique, we analyse the time-varying variances and correlations between the daily returns on two equity stock market indexes, the New York Stock Exchange and the Madrid Stock Exchange Index