Correcting microstructure comovement biases for integrated covariance

Jin-Huei Yeh and Jying-Nan Wang

Finance Research Letters, 2010, vol. 7, issue 3, 184-191

Abstract: Finding a precise variance-covariance matrix is the building block of empirical finance. While microstructure-noise-robust methods for realized volatility are in the mainstream of financial econometrics, little if any attention has been devoted to estimating a noise-free realized covariance for overlooking the well-documented manifestation of commonality in market microstructure factors such as order flows, liquidity or herding. By documenting and recognizing this fact, we propose a microstructure-noise-free nonparametric covariance estimator to uncover the virtual integrated covariance. The estimator is easy to implement and performs admirably.

Keywords: Realized; covariance; Commonality; Market; microstructure; Bias; correction (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544-6123(10)00034-6
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:7:y:2010:i:3:p:184-191

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().