Estimating the Leverage Effect Using High Frequency Data

Guido Russi ()
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Guido Russi: OXERA Consulting Ltd, United Kingdom

Review of Economics & Finance, 2012, vol. 2, 1-24

Abstract: This paper investigates the dynamics of the leverage effect over time, using high frequency data. By applying Realized Kernel techniques, a more precise estimate of Realized Correlation ¨C compared to standard subsampled estimators of Realized Correlation ¨C is derived. This new measure avoids the so-called Epps effect and permits to observe a level of Realized Correlation significantly different from zero ¨C unlike standard subsampled estimators. Modeling the resulting measure, a deeper insight into the dynamic behavior of Realized Correlation ¨C and hence into the dynamics of leverage effects ¨C is obtained. In particular, this paper studies the behavior of Realized Correlation across the recent financial crisis, to gain a deeper understanding of the factors underlying leverage effects at different stages of the crisis.

Keywords: Leverage effect; Realized kernels; Realized correlation; Realized variance; Epps effect (search for similar items in EconPapers)
JEL-codes: C22 C52 G21 (search for similar items in EconPapers)
Date: 2012
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