Realized Covariance Tick-by-Tick in Presence of Rounded Time Stamps and General Microstructure Effects
University of St. Gallen
Scuola Normale Superiore
University of St. Gallen Economics Discussion Paper No. 2008-04
This paper presents two classes of tick-by-tick covariance estimators adapted to the case of rounding in the price time stamps to a frequency lower than the typical arrival rate of tick prices. We investigate, through Monte Carlo simulations, the behavior of such estimators under realistic market microstructure conditions analogous to that of the financial data studied in the empirical section; that is, non-synchronous trading, general ARMA structure for microstructure noise, and true lead-lag cross-covariance. Simulation results show the robustness of the proposed tick-by-tick covariance estimators to time stamps rounding, and their overall performance superior to competing covariance estimators under empirically realistic microstructure conditions.
Number of Pages in PDF File: 30
Keywords: High frequency data, Realized covariance, Market microstructure, Bias correction
JEL Classification: C13, C22, C51, C53working papers series
Date posted: February 18, 2008
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 2.719 seconds