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An Econometric Analysis of Modulated Realised Covariance, Regression and Correlation in Noisy Diffusion Models

Publikation: Working paperForskning

  • Institut for Økonomi
This paper introduces a new estimator to measure the ex-post covariation between
high-frequency financial time series under market microstructure noise. We provide an
asymptotic limit theory (including feasible central limit theorems) for standard methods
such as regression, correlation analysis and covariance, for which we obtain the optimal rate
of convergence. We demonstrate some positive semidefinite estimators of the covariation
and construct a positive semidefinite estimator of the conditional covariance matrix in
the central limit theorem. Furthermore, we indicate how the assumptions on the noise
process can be relaxed and how our method can be applied to non-synchronous observations.
We also present an empirical study of how high-frequency correlations, regressions and
covariances change through time.
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider48
StatusUdgivet - 2008

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