Positive Semidefinite Integrated Covariance Estimation, Factorizations and Asynchronicity

Publikation: Working paperForskning

Dokumenter

  • rp14_05

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  • Kris Boudt, Vrije Universiteit Brussel, Belgium and VU University Amsterdam, Holland
  • Sébastien Laurent, Aix-Marseille University, Frankrig
  • Asger Lunde
  • Rogier Quaedvlieg, Maastricht University, Holland
An estimator of the ex-post covariation of log-prices under asynchronicity and microstructure noise is proposed. It uses the Cholesky factorization on the correlation matrix in order to exploit the heterogeneity in trading intensity to estimate the different parameters sequentially with as many observations as possible. The estimator is guaranteed positive semidefinite. Monte Carlo simulations confirm good finite sample properties. In the application we forecast portfolio Value-at-Risk and sector risk exposures for a portfolio of 52 stocks. We find that forecasts obtained from dynamic models utilizing the proposed high-frequency estimator provide statistically and economically superior forecasts to models using daily returns.
OriginalsprogEngelsk
UdgivelsesstedAarhus
UdgiverInstitut for Økonomi, Aarhus Universitet
Antal sider32
StatusUdgivet - 25 feb. 2014
SerietitelCREATES Research Papers
Nummer2014-05

    Forskningsområder

  • Cholesky decomposition, Integrated covariance, Non-synchronous trading, Positive semidefinite, Realized covariance

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