Modeling Tick-by-Tick Realized Correlations

University of St. Gallen Economics Discussion Paper No. 2008-05

29 Pages Posted: 18 Feb 2008 Last revised: 27 Apr 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

We propose a tree-structured heterogeneous autoregressive (tree-HAR) process as a simple and parsimonious model for the estimation and prediction of tick-by-tick realized correlations. The model can account for different time and other relevant predictors' dependent regime shifts in the conditional mean dynamics of the realized correlation series. Testing the model on S&P 500 and 30-year treasury bond futures realized correlations, we provide empirical evidence that the tree-HAR model reaches a good compromise between simplicity and flexibility, and yields accurate single- and multi-step out-of-sample forecasts. Such forecasts are also better then those obtained from other standard approaches.

Keywords: High frequency data, Realized correlation, Stock-bond correlation, Tree-structured models, HAR, Regimes

JEL Classification: C13, C22, C51, C53

Suggested Citation

Audrino, Francesco and Corsi, Fulvio, Modeling Tick-by-Tick Realized Correlations (January 2008). University of St. Gallen Economics Discussion Paper No. 2008-05. Available at SSRN: https://ssrn.com/abstract=1094750 or http://dx.doi.org/10.2139/ssrn.1094750

Francesco Audrino (Contact Author)

University of St. Gallen ( email )

Bodanstrasse 6
St. Gallen, CH-9000
Switzerland

Fulvio Corsi

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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