Covariance estimation using high-frequency data: Sensitivities of estimation methods

Erik Haugom, Gudbrand Lien, Steinar Veka and Sjur Westgaard

Economic Modelling, 2014, vol. 43, issue C, 416-425

Abstract: In this study we examine three widely used realized correlation estimators for natural gas, gasoil, and crude oil futures using data from IntercontinentalExchange (ICE). The objective is to illustrate sensitivities of estimation methods on the resulting realized correlation estimates. The empirical results show that the choice between the various correlation estimators is not at all trivial and depends strongly on the specific features and liquidity of the observed price processes. These findings suggest that great care must be taken when using high-frequency data in portfolio risk applications.

Keywords: Realized correlation; High-frequency data; ICE crude oil; Gasoil; Gas futures (search for similar items in EconPapers)
JEL-codes: C13 C58 G1 G13 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:43:y:2014:i:c:p:416-425

DOI: 10.1016/j.econmod.2014.08.016

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