Sujin Park
Estimating the quadratic covariation matrix for asynchronously observed high frequency stock returns corrupted by additive measurement error
Park, Sujin; Hong, Seok Young; Linton, Oliver
Authors
Seok Young Hong
Oliver Linton
Abstract
This paper studies the estimation problem of the covariance matrices of asset returns in the presence of microstructure noise and asynchronicity between the observations across different assets. Motivated by Malliavin and Mancino (2002, 2009) we propose a new Fourier domain based estimator of multivariate ex-post volatility, which we call the Fourier Realized Kernel (FRK). An advantage of this approach is that no explicit time alignment is required unlike the time domain based methods widely adopted in the existing literature. We derive the large sample properties and establish asymptotic normality of our estimator under some general conditions that allow for both temporal and cross-sectional correlations in the measurement error process. Our results can be viewed as Frequency domain extension of the asymptotic theories for the multivariate realized kernel estimator of Barndorff-Nielsen et al. (2011). We show in extensive simulations that our method outperforms the time domain estimators when two assets with different liquidity are traded asynchronously.
Citation
Park, S., Young Hong, S., & Linton, O. (2016). Estimating the quadratic covariation matrix for asynchronously observed high frequency stock returns corrupted by additive measurement error. Journal of Econometrics, 191(2), (325-347). doi:10.1016/j.jeconom.2015.12.005. ISSN 0304-4076
Journal Article Type | Article |
---|---|
Acceptance Date | Jul 24, 2015 |
Online Publication Date | Dec 23, 2015 |
Publication Date | Apr 4, 2016 |
Deposit Date | Oct 22, 2018 |
Publicly Available Date | Mar 29, 2024 |
Journal | Journal of Econometrics |
Print ISSN | 0304-4076 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Volume | 191 |
Issue | 2 |
Pages | 325-347 |
DOI | https://doi.org/10.1016/j.jeconom.2015.12.005 |
Keywords | Quadratic covariation; Market microstructure noise; Asynchronous observations; Fourier Realized Kernel |
Public URL | https://nottingham-repository.worktribe.com/output/1178758 |
Publisher URL | https://www.sciencedirect.com/science/article/pii/S030440761500281X |
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