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:	2001-09-01
Authors:	Brandt, Michael W. ; Diebold, Francis X.
Institutions:	Department of Economics, University of Pennsylvania
Subject:	Range-based estimation \| volatility \| covariance \| correlation \| absence of arbitrage \| exchange rates \| stock returns \| bond returns \| bid-ask bounce \| asynchronous trading

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Extent:	application/pdf
Series:	PIER Working Paper Archive.
Type of publication:	Book / Working Paper
Notes:	22 pages
Classification:	C10 - Econometric and Statistical Methods: General. General ; G10 - General Financial Markets. General
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005109594