Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25433
Authors: 
Brandt, Michael W.
Diebold, Francis X.
Year of Publication: 
2004
Series/Report no.: 
CFS Working Paper 2004/07
Abstract: 
We extend the important idea of range-based volatility estimation to the multivariate case. In particular, we propose a range-based covariance estimator that is motivated by financial economic considerations (the absence of arbitrage), in addition to statistical considerations. We show that, unlike other univariate and multivariate volatility estimators, the range-based estimator is highly efficient yet robust to market microstructure noise arising from bid-ask bounce and asynchronous trading. Finally, we provide an empirical example illustrating the value of the high-frequency sample path information contained in the range-based estimates in a multivariate GARCH framework.
Subjects: 
range-based estimation
volatility
covariance
correlation
absence of arbitrage
exchange rates
stock returns
bond returns
bid-ask bounce
asynchronous trading
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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