Multivariate Fractional Components Analysis

Abstract: We propose a setup for fractionally cointegrated time series which is formulated in terms of latent integrated and short-memory components. It accommodates nonstationary processes with different fractional orders and cointegration of different strengths and is applicable in high-dimensional settings. In an application to realized covariance matrices, we find that orthogonal short- and long-memory components provide a reasonable fit and competitive out-of-sample performance compared to several competing methods.