Disentangled jump-robust realized covariances and correlations with non-synchronous prices

Harry Vander Elst () and David Veredas

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: We study the class of disentangled realized estimators for the integrated covariance matrix of Brownian semimartingales with finite activity jumps. These estimators separate correlations and volatilities. We analyse – in a through Monte Carlo study – different combinations of quantile-and-median-based realized volatilities, and four estimators of realized correlations with three synchronization schemes. Their finite sample properties are studied under four data generating processes and in presence, or not, of microstructure noise, and under synchronous and asynchronous trading. The main finding is that pre-averaged disentangled estimators provide a precise, computationally efficient and easy alternative to measure integrated covariances on basis of noisy and asynchronous prices. Moreover, the gain is not only statistical but also financial. A minimum variance portfolio application shows the superiority of the disentangled realized estimators in terms of numerous performance metrics.

Keywords: Realized; measures; Noise; Jumps; Syncrhonization (search for similar items in EconPapers)
Date: 2014-09-08
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (2)

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Working Paper: Disentangled Jump-Robust Realized Covariances and Correlations with Non-Synchronous Prices (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:ws142416

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