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Outlyingness Weighted CovariationKris BoudtKU Leuven - Faculty of Business and Economics (FBE); Free University of Brussels (VUB); VU University Amsterdam Christophe CrouxKU Leuven - Faculty of Business and Economics (FBE) Sébastien LaurentMaastricht University - Department of Quantitative Economics June 22, 2008 Journal of Financial Econometrics, Vol. 9, pp. 657-684, 2011 Abstract: Quadratic covariation is a popular descriptive measure for the volatility of a multivariate price process. It is consistently estimated by the sum of outer products of high-frequency returns. The proposed Realized Outlyingness Weighted Covariation (ROWCov) is a \emph{weighted} sum of outer products of high-frequency returns and downweights returns that, because of jumps or other reasons, are outliers under the Brownian semimartingale model. The ROWCov is positive semidefinite and remains consistent for the integrated covariance in the presence of a finite activity jump process. We illustrate the usefulness of the estimator on 5-minute returns on the transaction prices of the Dow Jones Industrial Average constituents.
Number of Pages in PDF File: 38 Keywords: Continuous-time methods, high-frequency data, quadratic covariation, realized covolatility, semi-martingales JEL Classification: C14, C32 Accepted Paper SeriesDate posted: June 23, 2008 ; Last revised: March 4, 2012Suggested CitationContact Information
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