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 market microstructure noise arising from bid-ask bounce and asynchronous trading.

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Year of publication:	2003-05
Authors:	Diebold, Francis ; Brandt, Michael W.
Institutions:	National Bureau of Economic Research (NBER)

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Extent:	application/pdf
Series:	NBER Working Papers.
Type of publication:	Book / Working Paper
Notes:	AP published as Michael W. Brandt & Francis X. Diebold, 2006. "A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations," Journal of Business, University of Chicago Press, vol. 79(1), pages 61-74, January. Number 9664
Classification:	G1 - General Financial Markets
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005050375