TY - JOUR
T1 - Positive semidefinite integrated covariance estimation, factorizations and asynchronicity
AU - Boudt, Kris
AU - Laurent, Sébastien
AU - Lunde, Asger
AU - Quaedvlieg, Rogier
AU - Orimar, Sauri Arregui
PY - 2017
Y1 - 2017
N2 - An estimator of the ex-post covariation of log-prices under asynchronicity and microstructure noise is proposed. It uses the Cholesky factorization of the covariance matrix in order to exploit the heterogeneity in trading intensities to estimate the different parameters sequentially with as many observations as possible. The estimator is positive semidefinite by construction. We derive asymptotic results and confirm their good finite sample properties by means of a Monte Carlo simulation. In the application we forecast portfolio Value-at-Risk and sector risk exposures for a portfolio of 52 stocks. We find that the dynamic models utilizing the proposed high-frequency estimator provide statistically and economically superior forecasts.
AB - An estimator of the ex-post covariation of log-prices under asynchronicity and microstructure noise is proposed. It uses the Cholesky factorization of the covariance matrix in order to exploit the heterogeneity in trading intensities to estimate the different parameters sequentially with as many observations as possible. The estimator is positive semidefinite by construction. We derive asymptotic results and confirm their good finite sample properties by means of a Monte Carlo simulation. In the application we forecast portfolio Value-at-Risk and sector risk exposures for a portfolio of 52 stocks. We find that the dynamic models utilizing the proposed high-frequency estimator provide statistically and economically superior forecasts.
U2 - 10.1016/j.jeconom.2016.09.016
DO - 10.1016/j.jeconom.2016.09.016
M3 - Journal article
SN - 0304-4076
VL - 196
SP - 347
EP - 367
JO - Journal of Econometrics
JF - Journal of Econometrics
IS - 2
ER -