Department of Economics and Business Economics

Multivariate realised kernels: consistent positive semi-definite estimators of the covariation of equity prices with noise and non-synchronous trading

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  • Rp08 63

    Final published version, 568 KB, PDF document

  • School of Economics and Management
We propose a multivariate realised kernel to estimate the ex-post covariation of log-prices. We
show this new consistent estimator is guaranteed to be positive semi-definite and is robust to measurement
noise of certain types and can also handle non-synchronous trading. It is the first estimator
which has these three properties which are all essential for empirical work in this area. We derive
the large sample asymptotics of this estimator and assess its accuracy using a Monte Carlo study. We
implement the estimator on some US equity data, comparing our results to previous work which has
used returns measured over 5 or 10 minutes intervals. We show the new estimator is substantially
more precise.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages41
Publication statusPublished - 2008

    Research areas

  • HAC estimator, Long run variance estimator, Market frictions, Quadratic variation, Realised variance

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