IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Using High-Frequency Data in Dynamic Portfolio Choice

Listed author(s):
  • Federico Bandi
  • Jeffrey Russell
  • Yinghua Zhu
Registered author(s):

    This article evaluates the economic benefit of methods that have been suggested to optimally sample (in an MSE sense) high-frequency return data for the purpose of realized variance/covariance estimation in the presence of market microstructure noise (Bandi and Russell, 2005a, 2008). We compare certainty equivalents derived from volatility-timing trading strategies relying on optimally-sampled realized variances and covariances, on realized variances and covariances obtained by sampling every 5 minutes, and on realized variances and covariances obtained by sampling every 15 minutes. In our sample, we show that a risk-averse investor who is given the option of choosing variance/covariance forecasts derived from MSE-based optimal sampling methods versus forecasts obtained from 5- and 15-minute intervals (as generally proposed in the literature) would be willing to pay up to about 80 basis points per year to achieve the level of utility that is guaranteed by optimal sampling. We find that the gains yielded by optimal sampling are economically large, statistically significant, and robust to realistic transaction costs.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

    Volume (Year): 27 (2008)
    Issue (Month): 1-3 ()
    Pages: 163-198

    in new window

    Handle: RePEc:taf:emetrv:v:27:y:2008:i:1-3:p:163-198
    DOI: 10.1080/07474930701870461
    Contact details of provider: Web page:

    Order Information: Web:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:taf:emetrv:v:27:y:2008:i:1-3:p:163-198. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.