Realized Covariance Tick-by-Tick in Presence of Rounded Time Stamps and General Microstructure Effects

Fulvio Corsi () and Francesco Audrino ()

University of St. Gallen Department of Economics working paper series 2008 from Department of Economics, University of St. Gallen

Abstract: This paper presents two classes of tick-by-tick covariance estimators adapted to the case of rounding in the price time stamps to a frequency lower than the typical arrival rate of tick prices. We investigate, through Monte Carlo simulations, the behavior of such estimators under realistic market microstructure conditions analogous to that of the financial data studied in the empirical section; that is, non-synchronous trading, general ARMA structure for microstructure noise, and true lead-lag cross-covariance. Simulation results show the robustness of the proposed tick-by-tick covariance estimators to time stamps rounding, and their overall performance superior to competing covariance estimators under empirically realistic microstructure conditions.

Keywords: High frequency data; Realized covariance; Market microstructure; Bias correction (search for similar items in EconPapers)
JEL-codes: C13 C22 C51 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-mst
Date: 2008-01
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