Department of Economics and Business Economics

Bootstrapping integrated covariance matrix estimators in noisy jump-diffusion models with non-synchronous trading

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  • rp14_35

    Submitted manuscript, 1.17 MB, PDF document

We propose a bootstrap mehtod for estimating the distribution (and functionals of it such as the variance) of various integrated covariance matrix estimators. In particular, we first adapt the wild blocks of blocks bootsratp method suggested for the pre-averaged realized volatility estimator to a gneral class of estimators of integrated covolatility. We then show the first-order asymptotic validity of this method in the multivariate context with a potential presence of jumps, dependent microsturcture noise, irregularly spaced and non-synchronous data. Due to our focus on non-studentized statistics, our results justify using the bootstrap to esitmate the covariance matrix of a broad class of covolatility estimators. The bootstrap variance estimator is positive semi-definite by construction, an appealing feature that is not always shared by existing variance estimators of the integrated covariance estimator. As an application of our results, we also consider the bootstrap for regression coefficients. We show that the wild blocks of bootstrap, appropriately centered, is able to mimic both the dependence and heterogeneity of the scores, thus justifying the construction of bootstrap percentile intervals as well as variance estimates in this context. This contrasts with the traditional pairs bootstrap which is not able to mimic the score heterogeneity even in the simple case where no microsturcture noise is present. Our Monte Carlo simulations show that the wild blocks of blocks bootstrap improves the finite sample properties of the existing first-order asymptotic theory. We illustrate its practical use on high-frequency equity data
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages44
Publication statusPublished - 14 Oct 2014
SeriesCREATES Research Papers

    Research areas

  • High-frequency data, Market microstructure noise, Non-synchronous data, Jumps, realized measures, Integrated covariance, Wild bootstrap, Block bootstrap

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