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Portfolio analysis of intraday covariance matrix in the Greek equity market

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  • Vortelinos, Dimitrios I.

Abstract

The intraday nonparametric estimation of the variance–covariance matrix adds to the literature in portfolio analysis of the Greek equity market. This paper examines the economic value of various realized volatility and covariance estimators under the strategy of volatility timing. I use three types of portfolios: Global Minimum Variance, Capital Market Line and Capital Market Line with only positive weights. The estimators of volatilities and covariances use 5-min high-frequency intraday data. The dataset concerns the FTSE/ATHEX Large Cap index, FTSE/ATHEX Mid Cap index, and the FTSE/ATHEX Small Cap index of the Greek equity market (Athens Stock Exchange). As far as I know, this is the first work of its kind for the Greek equity market. Results concern not only the comparison of various estimators but also the comparison of different types of portfolios, in the strategy of volatility timing. The economic value of the contemporary non-parametric realized volatility estimators is more significant than this when the covariance is estimated by the daily squared returns. Moreover, the economic value (in b.p.s) of each estimator changes with the volatility timing.

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File URL: http://www.sciencedirect.com/science/article/pii/S0275531912000360
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Article provided by Elsevier in its journal Research in International Business and Finance.

Volume (Year): 27 (2013)
Issue (Month): 1 ()
Pages: 66-79

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Handle: RePEc:eee:riibaf:v:27:y:2013:i:1:p:66-79
Contact details of provider: Web page: http://www.elsevier.com/locate/ribaf

Keywords: Portfolio analysis; Covariance; Volatility timing; Realized volatility; Greece;

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  1. Ole E. Barndorff-Nielsen & Peter Reinhard Hansen & Asger Lunde & Neil Shephard, 2008. "Multivariate realised kernels: consistent positive semi-definite estimators of the covariation of equity prices with noise and non-synchronous trading," OFRC Working Papers Series 2008fe29, Oxford Financial Research Centre.
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