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Estimating the Leverage Effect Using High Frequency Data

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  • Guido Russi

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    (OXERA Consulting Ltd, United Kingdom)

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    Abstract

    This 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 Info

    Article provided by Better Advances Press, Canada in its journal Review of Economics & Finance.

    Volume (Year): 2 (2012)
    Issue (Month): (February)
    Pages: 1-24

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    Handle: RePEc:bap:journl:120101

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    Related research

    Keywords: Leverage effect; Realized kernels; Realized correlation; Realized variance; Epps effect;

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