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Realized Covariance Tick-by-Tick in Presence of Rounded Time Stamps and General Microstructure Effects

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  • Fulvio Corsi

    ()

  • Francesco Audrino

    ()

Abstract

This paper presents two classes of tick-by-tick covariance estimators adapted to the case of rounding in the price time stamps to a frequency lower than the typical arrival rate of tick prices. We investigate, through Monte Carlo simulations, the behavior of such estimators under realistic market microstructure conditions analogous to that of the financial data studied in the empirical section; that is, non-synchronous trading, general ARMA structure for microstructure noise, and true lead-lag cross-covariance. Simulation results show the robustness of the proposed tick-by-tick covariance estimators to time stamps rounding, and their overall performance superior to competing covariance estimators under empirically realistic microstructure conditions.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2008/DP-04-Co.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2008 with number 2008-04.

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Length: 30 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:usg:dp2008:2008-04

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Keywords: High frequency data; Realized covariance; Market microstructure; Bias correction;

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Cited by:
  1. Fulvio Corsi & Francesco Audrino, 2008. "Modeling Tick-by-Tick Realized Correlations," University of St. Gallen Department of Economics working paper series 2008 2008-05, Department of Economics, University of St. Gallen.
  2. Audrino, Francesco, 2014. "Forecasting correlations during the late-2000s financial crisis: The short-run component, the long-run component, and structural breaks," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 43-60.
  3. Corsi, Fulvio & Peluso, Stefano & Audrino, Francesco, 2012. "Missing in Asynchronicity: A Kalman-EM Approach for Multivariate Realized Covariance Estimation," Economics Working Paper Series 1202, University of St. Gallen, School of Economics and Political Science.

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