Pre-averaging estimators of the ex-post covariance matrix in noisy diffusion models with non-synchronous data

Kim Christensen (), Silja Kinnebrock () and Mark Podolskij ()
Additional contact information
Silja Kinnebrock: Oxford-Man Institute of Quantitative Finance, Oxford University, Postal: Oxford-Man Institute of Quantitative Finance, Oxford University, UK

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In this paper, we show how simple pre-averaging can be applied to measure the ex-post covariance of high-frequency financial time series under market microstructure noise and non-synchronous trading. A modulated realised covariance based on pre-averaged data is proposed and studied in this setting, and we provide complete large sample asymptotics for this new estimator, including feasible central limit theorems for standard methods such as covariance, regression, and correlation analysis. We discuss several versions of the modulated realised covariance, which can be designed to possess an optimal rate of convergence or to guarantee positive semi-definite covariance matrix estimates. We also derive a pre-averaged version of the Hayashi-Yoshida estimator that can be applied directly to the noisy and nonsynchronous data without any prior alignment of prices. An empirical study illustrates how high-frequency covariances, regression coefficients, and correlations change through time.

Keywords: Central limit theorem; Diffusionmodels; High-frequency data; Marketmicrostructure noise; Non-synchronous trading; Pre-averaging; Realised covariance (search for similar items in EconPapers)
JEL-codes: C10 C22 C80 (search for similar items in EconPapers)
Pages: 34
Date: 2009-09-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mst
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Related works:
Journal Article: Pre-averaging estimators of the ex-post covariance matrix in noisy diffusion models with non-synchronous data (2010)
Working Paper: Pre-averaging estimators of the ex-post covariance matrix in noisy diffusion models with non-synchronous data (2010)
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