A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations
We extend range-based volatility estimation to the multivariate case. In particular, we propose a range-based covariance estimator motivated by a key financial economic consideration, the absence of arbitrage, in addition to statistical considerations. We show that this estimator is highly efficient yet robust to the market microstructure noise arising from bid-ask bounce and asynchronous trading.
Year of publication: |
2006
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Authors: | Brandt, Michael W. ; Diebold, Francis X. |
Published in: |
The Journal of Business. - University of Chicago Press. - Vol. 79.2006, 1, p. 61-74
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Publisher: |
University of Chicago Press |
Saved in:
Online Resource
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