RT Generic
T1 Volatility and covariation of financial assets: a high-frequency analysis
A1 Cartea, Álvaro
A1 Karyampas, Dimitrios
A2 Universidad Carlos III de Madrid. Departamento de Economía de la Empresa, 
AB Using high frequency data for the price dynamics of equities we measure the impact that marketmicrostructure noise has on estimates of the: (i) volatility of returns; and (ii) variance-covariancematrix of n assets. We propose a Kalman-filter-based methodology that allows us to deconstructprice series into the true efficient price and the microstructure noise. This approach allows us toemploy volatility estimators that achieve very low Root Mean Squared Errors (RMSEs) comparedto other estimators that have been proposed to deal with market microstructure noise at highfrequencies. Furthermore, this price series decomposition allows us to estimate the variancecovariance matrix of $n$ assets in a more efficient way than the methods so far proposed in theliterature. We illustrate our results by calculating how microstructure noise affects portfoliodecisions and calculations of the equity beta in a CAPM setting.
YR 2009
FD 2009-12
LK http://hdl.handle.net/10016/5904
UL http://hdl.handle.net/10016/5904
LA eng
DS e-Archivo
RD 30 abr. 2024