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de Pooter, Michiel
Martens, Martin
van Dijk, Dick
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper 05-089/4
This paper investigates the merits of high-frequency intraday data when forming minimum variance portfolios and minimum tracking error portfolios with daily rebalancing from the individual constituents of the S&P 100 index. We focus on the issue of determining the optimal sampling frequency, which strikes a balance between variance and bias in covariance matrix estimates due to market microstructure effects such as non-synchronous trading and bid-ask bounce. The optimal sampling frequency typically ranges between 30- and 65-minutes, considerably lower than the popular five-minute frequency. We also examine how bias-correction procedures, based on the addition of leads and lags and on scaling, and a variance-reduction technique, based on subsampling, affect the performance.
realized volatility
high-frequency data
volatility timing
mean-variance analysis
tracking error
Document Type: 
Working Paper

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