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Volatility and covariation of financial assets: a high-frequency analysis

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorCartea, Álvaro
dc.contributor.authorKaryampas, Dimitrios
dc.contributor.editorUniversidad Carlos III de Madrid. Departamento de Economía de la Empresa
dc.date.accessioned2011-05-12T07:24:26Z
dc.date.available2011-05-12T07:24:26Z
dc.date.issued2009-12
dc.description.abstractUsing high frequency data for the price dynamics of equities we measure the impact that market microstructure noise has on estimates of the: (i) volatility of returns; and (ii) variance-covariance matrix of n assets. We propose a Kalman-filter-based methodology that allows us to deconstruct price series into the true efficient price and the microstructure noise. This approach allows us to employ volatility estimators that achieve very low Root Mean Squared Errors (RMSEs) compared to other estimators that have been proposed to deal with market microstructure noise at high frequencies. Furthermore, this price series decomposition allows us to estimate the variance covariance matrix of $n$ assets in a more efficient way than the methods so far proposed in the literature. We illustrate our results by calculating how microstructure noise affects portfolio decisions and calculations of the equity beta in a CAPM setting.
dc.format.mimetypeapplication/pdf
dc.format.mimetypetext/plain
dc.identifier.repecwb097609
dc.identifier.urihttps://hdl.handle.net/10016/5904
dc.language.isoeng
dc.relation.ispartofseriesUC3M Working papers. Business Economics
dc.relation.ispartofseries09-09
dc.rightsAtribución-NoComercial-SinDerivadas 3.0 España
dc.rights.accessRightsopen access
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.ecienciaEmpresa
dc.subject.jelG12
dc.subject.jelG14
dc.subject.jelC22
dc.subject.otherVolatility estimation
dc.subject.otherHigh-frequency data
dc.subject.otherMarket microstructure theory
dc.subject.otherCovariation of assets
dc.subject.otherMatrix process
dc.subject.otherKalman filter
dc.titleVolatility and covariation of financial assets: a high-frequency analysis
dc.typeworking paper*
dspace.entity.typePublication
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