Estimating the Leverage Effect Using High Frequency Data
AbstractThis paper investigates the dynamics of the leverage effect over time, using high frequency data. By applying Realized Kernel techniques, a more precise estimate of Realized Correlation ¨C compared to standard subsampled estimators of Realized Correlation ¨C is derived. This new measure avoids the so-called Epps effect and permits to observe a level of Realized Correlation significantly different from zero ¨C unlike standard subsampled estimators. Modeling the resulting measure, a deeper insight into the dynamic behavior of Realized Correlation ¨C and hence into the dynamics of leverage effects ¨C is obtained. In particular, this paper studies the behavior of Realized Correlation across the recent financial crisis, to gain a deeper understanding of the factors underlying leverage effects at different stages of the crisis.
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Bibliographic InfoArticle provided by Better Advances Press, Canada in its journal Review of Economics & Finance.
Volume (Year): 2 (2012)
Issue (Month): (February)
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Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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