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Robust Estimation of Realized Correlation: New Insight about Intraday Fluctuations in Market Betas

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  • Peter Reinhard Hansen
  • Yiyao Luo

Abstract

Time-varying volatility is an inherent feature of most economic time-series, which causes standard correlation estimators to be inconsistent. The quadrant correlation estimator is consistent but very inefficient. We propose a novel subsampled quadrant estimator that improves efficiency while preserving consistency and robustness. This estimator is particularly well-suited for high-frequency financial data and we apply it to a large panel of US stocks. Our empirical analysis sheds new light on intra-day fluctuations in market betas by decomposing them into time-varying correlations and relative volatility changes. Our results show that intraday variation in betas is primarily driven by intraday variation in correlations.

Suggested Citation

  • Peter Reinhard Hansen & Yiyao Luo, 2023. "Robust Estimation of Realized Correlation: New Insight about Intraday Fluctuations in Market Betas," Papers 2310.19992, arXiv.org.
    • Handle: RePEc:arx:papers:2310.19992
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    1. Ilya Archakov, 2026. "A Robust Similarity Estimator," Papers 2601.12198, arXiv.org.

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