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Cross-correlation Measures in the High-frequency Domain

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  • Ovidiu V. Precup
  • Giulia Iori

Abstract

On a high-frequency scale the time series are not homogeneous, therefore standard correlation measures cannot be directly applied to the raw data. To deal with this problem the time series have to be either homogenized through interpolation, or methods that can handle raw non-synchronous time series need to be employed. This paper compares two traditional methods that use interpolation with an alternative method applied directly to the actual time series. The three methods are tested on simulated data and actual trades time series.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

Volume (Year): 13 (2007)
Issue (Month): 4 ()
Pages: 319-331

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Handle: RePEc:taf:eurjfi:v:13:y:2007:i:4:p:319-331

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Related research

Keywords: High-frequency correlation; Fourier method; co-volatility weighting; Epps effect;

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References

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  1. G. Bonanno & F. Lillo & R. N. Mantegna, 2001. "High-frequency cross-correlation in a set of stocks," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 96-104.
  2. Maria Elvira Mancino & Paul Malliavin, 2002. "Fourier series method for measurement of multivariate volatilities," Finance and Stochastics, Springer, vol. 6(1), pages 49-61.
  3. Onnela, J.-P. & Chakraborti, A. & Kaski, K. & Kertész, J., 2003. "Dynamic asset trees and Black Monday," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 247-252.
  4. Barucci, Emilio & Reno, Roberto, 2002. "On measuring volatility and the GARCH forecasting performance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(3), pages 183-200, July.
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Cited by:
  1. S. Sanfelici & M. E. Mancino, 2008. "Covariance estimation via Fourier method in the presence of asynchronous trading and microstructure noise," Economics Department Working Papers 2008-ME01, Department of Economics, Parma University (Italy).
  2. Ole E. Barndorff-Nielsen & Neil Shephard, 2005. "Variation, jumps, market frictions and high frequency data in financial econometrics," Economics Papers 2005-W16, Economics Group, Nuffield College, University of Oxford.
  3. Iori, G. & Precup, O. V., 2006. "Weighted network analysis of high frequency cross-correlation measures," Working Papers 06/10, Department of Economics, City University London.
  4. Nicolas Huth & Frédéric Abergel, 2011. "High frequency correlation modelling," Post-Print hal-00621244, HAL.
  5. Mattiussi, V. & Iori, G., 2006. "Currency futures volatility during the 1997 East Asian crisis: an application of Fourier analysis," Working Papers 06/09, Department of Economics, City University London.

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