Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5069935 | Finance Research Letters | 2010 | 8 Pages |
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.
Related Topics
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Authors
Jin-Huei Yeh, Jying-Nan Wang,