A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations

Michael W. Brandt and Francis Diebold
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Michael W. Brandt: Duke University and the National Bureau of Economic Research

The Journal of Business, 2006, vol. 79, issue 1, 61-74

Abstract: We extend range-based volatility estimation to the multivariate case. In particular, we propose a range-based covariance estimator motivated by a key financial economic consideration, the absence of arbitrage, in addition to statistical considerations. We show that this estimator is highly efficient yet robust to the market microstructure noise arising from bid-ask bounce and asynchronous trading.

Date: 2006
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Related works:
Working Paper: A no-arbitrage approach to range-based estimation of return covariances and correlations (2004)
Working Paper: A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations (2003)
Working Paper: A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations (2003)
Working Paper: A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:79:y:2006:i:1:p:61-74

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