A No-Arbitrage Approach to Range-Based Estimation of Return Covariances and Correlations, Second Version

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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Paper Number
03-013
Year
2003