On the estimation of integrated covariance matrices of high dimensional diffusion processes

DOI10.1214/11-AOS939MaRDI QIDQ449988zbMATH OpenOpenAlexFDO

Authors Xinghua Zheng, Yingying Li

Publication date 3 September 2012

Published in The Annals of Statistics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1005.1862, https://projecteuclid.org/euclid.aos/1327672848

zbMATH Keywords

high frequencyrealized covariance matrixweighted sample covariance matrixMarčenko-Pastur equation

Mathematics Subject Classification ID

Markov processes: estimation; hidden Markov models (62M05) Asymptotic distribution theory in statistics (62E20) Estimation in multivariate analysis (62H12) Order statistics; empirical distribution functions (62G30)

Abstract: We consider the estimation of integrated covariance (ICV) matrices of high dimensional diffusion processes based on high frequency observations. We start by studying the most commonly used estimator, the realized covariance (RCV) matrix. We show that in the high dimensional case when the dimension $p$ and the observation frequency $n$ grow in the same rate, the limiting spectral distribution (LSD) of RCV depends on the covolatility process not only through the targeting ICV, but also on how the covolatility process varies in time. We establish a Marv{c}enko--Pastur type theorem for weighted sample covariance matrices, based on which we obtain a Marv{c}enko--Pastur type theorem for RCV for a class $mathcalC$ of diffusion processes. The results explicitly demonstrate how the time variability of the covolatility process affects the LSD of RCV. We further propose an alternative estimator, the time-variation adjusted realized covariance (TVARCV) matrix. We show that for processes in class $mathcalC$, the TVARCV possesses the desirable property that its LSD depends solely on that of the targeting ICV through the Marv{c}enko--Pastur equation, and hence, in particular, the TVARCV can be used to recover the empirical spectral distribution of the ICV by using existing algorithms.

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Cited in

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• Time-varying periodicity in intraday volatility
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• Forecasting co-volatilities via factor models with asymmetry and long memory in realized covariance
• Large-dimensional factor modeling based on high-frequency observations
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