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Obtaining and Predicting the Bounds of Realized Correlations

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  • Lidan Grossmass

Abstract

This paper argues that the inherent data problems make precise point identification of realized correlation difficult but identification bounds in the spirit of Manski (1995) can be derived. These identification bounds allow for a more robust approach to inference especially when the realized correlation is used for estimating other risk measures. We forecast the identification bounds using the HAR model of Corsi (2003) using data during the year of onset of the credit crisis and find that the bounds provide good predictive coverage of the realized correlation for both 1- and 10-step forecasts even in volatile periods.

Suggested Citation

  • Lidan Grossmass, 2014. "Obtaining and Predicting the Bounds of Realized Correlations," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 150(III), pages 191-226, September.
  • Handle: RePEc:ses:arsjes:2014-iii-2
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    File URL: http://www.sjes.ch/papers/2014-III-2.pdf
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    References listed on IDEAS

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    1. Anonymous, 0. "1995 Spring," CWAE Newsletter, Agricultural and Applied Economics Association, Committee on Women in Agricultural Economics (CWAE).
    2. Fulvio Corsi, 2009. "A Simple Approximate Long-Memory Model of Realized Volatility," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 7(2), pages 174-196, Spring.
    3. Vortelinos, Dimitrios I., 2010. "The properties of realized correlation: Evidence from the French, German and Greek equity markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 273-290, August.
    4. Anonymous, 0. "1995 Fall," CWAE Newsletter, Agricultural and Applied Economics Association, Committee on Women in Agricultural Economics (CWAE).
    5. Anonymous, 0. "1995 Winter," CWAE Newsletter, Agricultural and Applied Economics Association, Committee on Women in Agricultural Economics (CWAE).
    6. Gençay, Ramazan & Dacorogna, Michel & Muller, Ulrich A. & Pictet, Olivier & Olsen, Richard, 2001. "An Introduction to High-Frequency Finance," Elsevier Monographs, Elsevier, edition 1, number 9780122796715.
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    More about this item

    Keywords

    High frequency data; realized covariance; partial identification; Bounds;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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