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On the estimation of correlations for irregularly spaced time series

Author

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  • Andersson, Jonas

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

In this paper, the problem of calculating covariances and correlations between time series which are observed irregularly and at different points in time, is treated. The problem of dependence between the time stamp process and the return process is especially highlighted and the solution to this problem for a special case is given. Furthermore, estimators based on different interpolation methods are investigated. The covariances are in turn used to estimate a simple regression on such data. In particular, the difference of first order integrated processes, I(1) processes, are considered. These methods are relevant for stock returns and consequently of importance in e.g. portfolio optimization.

Suggested Citation

  • Andersson, Jonas, 2007. "On the estimation of correlations for irregularly spaced time series," Discussion Papers 2007/19, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2007_019
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    File URL: http://hdl.handle.net/11250/163914
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    References listed on IDEAS

    as
    1. de Jong, Frank & Nijman, Theo, 1997. "High frequency analysis of lead-lag relationships between financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 259-277, June.
    2. 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.
    3. De Jong, Frank & Mahieu, Ronald & Schotman, Peter, 1998. "Price discovery in the foreign exchange market: an empirical analysis of the yen/dmark rate1, 2," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 5-27, February.
    4. Nijman, T.E. & de Jong, F.C.J.M., 1997. "High frequency analysis of lead-lag relationships between financial markets," Other publications TiSEM f4f406a0-771a-4af2-9364-6, Tilburg University, School of Economics and Management.
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    More about this item

    Keywords

    Irregularly spaced time series; covariance; correlation; financial returns;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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