Missing in Asynchronicity: A Kalman-EM Approach for Multivariate Realized Covariance Estimation

Item Type Journal paper
Abstract Motivated by the need of a positive-semidefinite estimator of multivariate realized covariance matrices, we model noisy and asynchronous ultra-high-frequency asset prices in a state-space framework with missing data. We then estimate the covariance matrix of the latent states through a Kalman smoother and Expectation Maximization (KEM) algorithm. Iterating between the two EM steps, we obtain a covariance matrix estimate which is robust to both asynchronicity and microstructure noise, and positive-semidefinite by construction. We show the performance of the KEM estimator using extensive Monte Carlo simulations that mimic the liquidity and market microstructure characteristics of the S&P 500 universe as well as in an high-dimensional application on US stocks. KEM provides very accurate covariance matrix estimates and significantly outperforms alternative approaches recently introduced in the literature.
Authors Corsi, Fulvio; Peluso, Stefano & Audrino, Francesco
Projects Fengler, Matthias; Buncic, Daniel & Audrino, Francesco (2012) Analysis and models of cross asset dependency structures in high-frequency data [applied research project]
Journal or Publication Title Journal of Applied Econometrics
Language English
Keywords High frequency data; Realized covariance matrix; Missing data; Kalman filter; EM algorithm.
Subjects economics
HSG Classification contribution to scientific community
HSG Profile Area SEPS - Quantitative Economic Methods
Refereed Yes
Date 1 May 2015
Publisher Wiley-Blackwell
Place of Publication Chichester
Volume 30
Number 3
Page Range 377-397
Number of Pages 21
ISSN 0883-7252
ISSN-Digital 1099-1255
Publisher DOI https://doi.org/10.1002/jae.2378
Depositing User Prof. Ph.D Francesco Audrino
Date Deposited 21 Nov 2013 18:39
Last Modified 03 Jul 2022 00:23
URI: https://www.alexandria.unisg.ch/publications/227469

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Corsi, Fulvio; Peluso, Stefano & Audrino, Francesco (2015) Missing in Asynchronicity: A Kalman-EM Approach for Multivariate Realized Covariance Estimation. Journal of Applied Econometrics, 30 (3). 377-397. ISSN 0883-7252

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https://www.alexandria.unisg.ch/id/eprint/227469
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