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Jump robust daily covariance estimation by disentangling variance and correlation components. (English) Zbl 1254.91565

Summary: A jump robust positive semidefinite rank-based estimator for the daily covariance matrix based on high-frequency intraday returns is proposed. It disentangles covariance estimation into variance and correlation components. This allows us to account for non-synchronous trading by estimating correlations over lower sampling frequencies. The efficiency gain of disentangling covariance estimation and the jump robustness of the estimator are illustrated in a simulation study. In an application to the Dow Jones Industrial Average constituents, it is shown that the proposed estimator leads to more stable portfolios.

MSC:

91B82 Statistical methods; economic indices and measures

Software:

RTAQ
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References:

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