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

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  • Ole E. Barndorff-Nielsen

    ()
    (Department of Mathematical Sciences - University of Aarhus)

  • Peter Reinhard Hansen

    ()
    (Department of Economics - Stanford University)

  • Asger Lunde

    ()
    (Aarhus University - Aarhus University)

  • Neil Shephard

    ()
    (University of Oxford - University of Oxford, Department of Economics - University of Oxford)

Abstract

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 error 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 min intervals. We show that the new estimator is substantially more precise.

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File URL: http://peer.ccsd.cnrs.fr/docs/00/81/55/64/PDF/PEER_stage2_10.1016%252Fj.jeconom.2010.07.009.pdf
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Bibliographic Info

Paper provided by HAL in its series Post-Print with number peer-00815564.

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Date of creation: 19 Apr 2011
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Publication status: Published, Journal of Econometrics, 2011, 162, 2, 149
Handle: RePEc:hal:journl:peer-00815564

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Related research

Keywords: HAC estimator; Long run variance estimator; Market frictions; Quadratic variation; Realised variance;

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