Continuous Record Asymptotics for Rolling Sample Variance Estimators
AbstractIt is widely known that conditional covariances of asset returns change over time. Researchers adopt many strategies to accommodate conditional heteroskedasticity. Among the most popular are: (a) chopping the data into short blocks of time and assuming homoskedasticity within the blocks, (b) performing one-sided rolling regressions, in which only data from, say, the preceding five year period is used to estimate the conditional covariance of returns at a given date, and (c) two-sided rolling regressions which use, say, five years of leads and five years of lags. GARCH amounts to a one-sided rolling regression with exponentially declining weights. We derive asymptotically optimal window lengths for standard rolling regressions and optimal weights for weighted rolling regressions. An empirical model of the S&P 500 stock index provides an example.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0163.
Date of creation: Aug 1994
Date of revision:
Publication status: published as Foster, Dean P. and Dan B. Nelson. "Continuous Record Asymptotics For Rolling Sample Variance Estimators," Econometrica, 1996, v64(1), 139-174.
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Other versions of this item:
- Foster, Dean P & Nelson, Daniel B, 1996. "Continuous Record Asymptotics for Rolling Sample Variance Estimators," Econometrica, Econometric Society, Econometric Society, vol. 64(1), pages 139-74, January.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
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