Integrated Covariance Estimation Using High-Frequency Data in the Presence of Noise

Voev, Valeri; Lunde, Asger

doi:10.2139/ssrn.917087

Cited by 54 publications

(55 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…If the series display non-negligible drift, this obviously needs to be taken into account when computing the quadratic covariation estimates. 15 See, e.g., the discussions in Hansen & Lunde (2006), Voev & Lunde (2007), and Bandi & Russell (2008). 16 Besides synchronization errors caused, e.g., by irregular and non-synchronous observation times, the MMS noise captures both exogenous effects, such as bid-ask bounce movements, and endogenous effects, such as asymmetric information and strategic learning among market participants.…”

Section: Measuring Quadratic Covariationmentioning

confidence: 99%

Dynamic Global Currency Hedging

Christensen

Varneskov

2016

SSRN Journal

View full text Add to dashboard Cite

This paper proposes a model for discrete-time hedging based on continuous-time movements in portfolio and foreign currency exchange rate returns. In particular, the vector of optimal currency exposures is shown to be given by the negative realized regression coefficients from a one-period conditional expectation of the intra-period quadratic covariation matrix for portfolio and foreign exchange rate returns. These are labelled the realized currency betas. The model, hence, facilitates dynamic hedging strategies that depend exclusively on the dynamic evolution of the ex-post quadratic covariation matrix. These hedging strategies are suggested implemented using modern, yet simple, non-parametric techniques to accurately measure and dynamically model historical quadratic covariation matrices. The empirical results from an extensive hedging exercise for equity investments illustrate that the realized currency betas exhibit important time variation, leading to substantial economic, as well as statistically significant, volatility reductions from the proposed hedging strategies, compared to existing benchmarks, without sacrificing returns. As a result, a risk-averse investor is shown to be willing to pay several hundred basis points to switch from existing hedging methods to the proposed realized currency beta approach. Interestingly, the empirical analysis strongly suggests that the superior performance of the latter during the most recent global financial crisis of 2008 is, at least partially, funded by carry traders.

show abstract

Section: Measuring Quadratic Covariationmentioning

confidence: 99%

Dynamic Global Currency Hedging

Christensen

Varneskov

2016

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…Zhang (2006b) showed that the bias is more pronounced in less liquid assets and provided a way, as in Bandi and Russell (2005b), to compute the optimal sampling frequency in order to reduce the bias. Voev and Lunde (2006) and Griffin and Oomen (2006) provide detailed finite sample studies of the MSE properties of several covariance estimators, including the realized covariance, optimally-sampled realized covariance, the HY estimator, and the lead-lag estimator (in Equation (26)). The authors also provided recommendations for practical implementations of such estimators.…”

Section: Recent Extensionsmentioning

confidence: 99%

Realized Volatility: A Review

McAleer

Medeiros

2008

Econometric Reviews

444

205

View full text Add to dashboard Cite

“…In practice, trading is non-synchronous, delivering fresh prices at irregularly spaced times, which differ across stocks. Research focusing on non-synchronous trading has been an active field of financial econometrics in past years; see, for example, Hayashi and Yoshida (2005) and Voev and Lunde (2007). This practical issue induces bias in the estimators and may be partially responsible for the Epps effect (Epps, 1979), a phenomenon of decreasing empirical correlation between the returns of two different stocks with increasing data-sampling frequency.…”

Section: Data Synchronization: Refresh Timementioning

confidence: 99%

Do Co-Jumps Impact Correlations in Currency Markets?

Baruník

Vácha

2016

SSRN Journal

View full text Add to dashboard Cite

We quantify how co-jumps impact correlations in currency markets. To disentangle the continuous part of quadratic covariation from co-jumps, and study the influence of co-jumps on correlations, we propose a new wavelet-based estimator. The proposed estimation framework is able to localize the co-jumps very precisely through wavelet coefficients and identify statistically significant co-jumps. Empirical findings reveal the different behaviors of co-jumps during Asian, European and U.S. trading sessions. Importantly, we document that co-jumps significantly influence correlation in currency markets.

show abstract

Integrated Covariance Estimation Using High-Frequency Data in the Presence of Noise

Cited by 54 publications

References 12 publications

Dynamic Global Currency Hedging

Dynamic Global Currency Hedging

Realized Volatility: A Review

Do Co-Jumps Impact Correlations in Currency Markets?

Contact Info

Product

Resources

About