Paper by Rogier Quaedvlieg Accepted in Econometrica
The paper "Realized Semicovariances" co-authored by Rogier Quaedvlieg (Erasmus University Rotterdam) has been accepted for publication in Econometrica.
The paper is joint work with Tim Bollerslev, Jia Li, and Andrew J. Patton (all Duke University, United States).
We propose a decomposition of the realized covariance matrix into components based on the signs of the underlying high-frequency returns, and we derive the asymptotic properties of the resulting realized semicovariance measures as the sampling interval goes to zero. The first-order asymptotic results highlight how the same-sign and mixed-sign components load differently on economic information related to stochastic correlation and jumps. The second-order asymptotic results reveal the structure underlying the same-sign semicovariances, as manifested in the form of co-drifting and dynamic “leverage” effects. In line with this anatomy, we use data on a large cross-section of individual stocks to empirically document distinct dynamic dependencies in the different realized semicovariance components. We show that the accuracy of portfolio return variance forecasts may be significantly improved by exploiting the information in realized semicovariances.
Read more about this research work on the Erasmus School of Economics website.