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Modeling Tick-by-Tick Realized Correlations

  • Fulvio Corsi

    ()

  • Francesco Audrino

    ()

We propose a tree-structured heterogeneous autoregressive (tree-HAR) process as a simple and parsimonious model for the estimation and prediction of tick-by-tick realized correlations. The model can account for different time and other relevant predictors' dependent regime shifts in the conditional mean dynamics of the realized correlation series. Testing the model on S&P 500 and 30-year treasury bond futures realized correlations, we provide empirical evidence that the tree-HAR model reaches a good compromise between simplicity and flexibility, and yields accurate single- and multi-step out-of-sample forecasts. Such forecasts are also better then those obtained from other standard approaches.

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File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2008/DP-05-Co.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2008 with number 2008-05.

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Length: 29 pages
Date of creation: Jan 2008
Handle: RePEc:usg:dp2008:2008-05
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