Range-Based Covariance Estimation Using High-Frequency Data: The Realized Co-Range<xref ref-type="author-notes" rid="AFN1">-super-*
We introduce the realized co-range, a novel estimator of the daily covariance between asset returns based on intraday high--low price ranges. In an ideal world, the co-range is five times more efficient than the realized covariance, which uses cross-products of intraday returns, when sampling at the same frequency. In Monte Carlo simulations, we find that for plausible levels of bid--ask bounce, infrequent trading and nonsynchronous trading, the realized co-range still improves upon the realized covariance. In a volatility timing strategy for S&P500, bond and gold futures, we find that the co-range estimates are less noisy, which results in lower transaction costs and higher Sharpe ratios. Copyright The Author 2009. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.
Year of publication: |
2009
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Authors: | Bannouh, Karim ; Dijk, Dick van ; Martens, Martin |
Published in: |
Journal of Financial Econometrics. - Society for Financial Econometrics - SoFiE, ISSN 1479-8409. - Vol. 7.2009, 4, p. 341-372
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Publisher: |
Society for Financial Econometrics - SoFiE |
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