Realized Covariance Tick-by-Tick in Presence of Rounded Time Stamps and General Microstructure Effects

University of St. Gallen Economics Discussion Paper No. 2008-04

30 Pages Posted: 18 Feb 2008

See all articles by Francesco Audrino

Francesco Audrino

University of St. Gallen

Fulvio Corsi

University of Pisa - Department of Economics; City University London

Date Written: January 2008

Abstract

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.

Keywords: High frequency data, Realized covariance, Market microstructure, Bias correction

JEL Classification: C13, C22, C51, C53

Suggested Citation

Audrino, Francesco and Corsi, Fulvio, Realized Covariance Tick-by-Tick in Presence of Rounded Time Stamps and General Microstructure Effects (January 2008). University of St. Gallen Economics Discussion Paper No. 2008-04. Available at SSRN: https://ssrn.com/abstract=1094747 or http://dx.doi.org/10.2139/ssrn.1094747

Francesco Audrino

University of St. Gallen ( email )

Bodanstrasse 6
St. Gallen, CH-9000
Switzerland

Fulvio Corsi (Contact Author)

University of Pisa - Department of Economics ( email )

via Ridolfi 10
I-56100 Pisa, PI 56100
Italy

HOME PAGE: http://people.unipi.it/fulvio_corsi/

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

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