In this study we provide an analytical characterization of the impact of zero returns on the popular realized covariance estimator of Barndorff-Nielsen and Shephard [Econometric analysis of realized covariation: High frequency based covariance, regression, and correlation in financial economics. Econometrica, 2004, 72(3), 885–925]. In our framework, efficient price processes evolve as a semimartingale with some likelihood of repeated prices. We show that the standard realized covariance estimator is asymptotically affected by a downward bias, and the size of the bias depends on these likelihoods. We demonstrate that this result can be used to construct a consistent estimator of the integrated covariance of a vector semimartingale. The advantages with respect to other estimators are discussed with data.

A closed-form formula characterization of the Epps effect

Livieri, Giulia;
2019

Abstract

In this study we provide an analytical characterization of the impact of zero returns on the popular realized covariance estimator of Barndorff-Nielsen and Shephard [Econometric analysis of realized covariation: High frequency based covariance, regression, and correlation in financial economics. Econometrica, 2004, 72(3), 885–925]. In our framework, efficient price processes evolve as a semimartingale with some likelihood of repeated prices. We show that the standard realized covariance estimator is asymptotically affected by a downward bias, and the size of the bias depends on these likelihoods. We demonstrate that this result can be used to construct a consistent estimator of the integrated covariance of a vector semimartingale. The advantages with respect to other estimators are discussed with data.
2019
Settore SECS-S/06 - Metodi mat. dell'economia e Scienze Attuariali e Finanziarie
Settore SECS-P/01 - Economia Politica
Settore SECS-P/02 - Politica Economica
Settore SECS-P/03 - Scienza delle Finanze
Settore SECS-P/06 - Economia Applicata
Settore SECS-P/05 - Econometria
Settore SECS-P/07 - Economia Aziendale
Settore SECS-P/08 - Economia e Gestione delle Imprese
Settore SECS-P/10 - Organizzazione Aziendale
Settore SECS-P/11 - Economia degli Intermediari Finanziari
Settore SECS-P/09 - Finanza Aziendale
Settore SECS-P/13 - Scienze Merceologiche
Settore SECS-P/12 - Storia Economica
Settore SECS-P/04 - Storia del Pensiero Economico
Settore SECS-S/01 - Statistica
Settore SECS-S/02 - Statistica per La Ricerca Sperimentale e Tecnologica
Settore SECS-S/03 - Statistica Economica
Settore SECS-S/04 - Demografia
Settore SECS-S/05 - Statistica Sociale
Epps effect; Realized covariance; Infill asymptotic; Liquidity
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11384/83013
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