Academic Bibliography

 Search 200 years of publications by Ghent University researchers.
Advanced search
1 file | 752.59 KB
Add to list
  1. Search results
  2. ETF Basket-Adjusted Covariance estima...

ETF Basket-Adjusted Covariance estimation

Kris Boudt (UGent) , Kirill Dragun (UGent) , Orimar Sauri and Steven Vanduffel
(2023) JOURNAL OF ECONOMETRICS. 235(2). p.1144-1171
Author
Organization
Abstract
The increase in trading frequency of Exchanged Traded Funds (ETFs) presents a positive externality for financial risk management when the price of the ETF is available at a higher frequency than the price of the component stocks. The positive spillover consists in improving the accuracy of pre-estimators of the integrated covariance of the stocks included in the ETF basket. The proposed ETF Basket-Adjusted Covariance (BAC) equals the pre-estimator plus a minimal adjustment matrix such that the covariance-implied stock-ETF covariation equals a target value. We focus on a truncated pre-averaged version of the (Hayashi and Yoshida, 2005) pre-estimator and derive the asymptotic properties of its implied stock-ETF covariation. The simulation study confirms that the accuracy gains are substantial in all cases considered. In the empirical part of the paper, we show the gains in tracking error efficiency when using the BAC adjustment to construct portfolios that replicate a broad index using a subset of stocks.
Keywords
Applied Mathematics, Economics and Econometrics, Index tracking, Localized Hayashi-Yoshida, Stock-ETF covariation, Asynchronicity, ETF, Realized covariances, High-frequency data

Downloads

  • Download
    1-s2.0-S0304407622001816-main.pdf
    • full text (Published version)
    • |
    • open access
    • |
    • PDF
    • |
    • 752.59 KB

Citation

Please use this url to cite or link to this publication:

MLA
Boudt, Kris, et al. “ETF Basket-Adjusted Covariance Estimation.” JOURNAL OF ECONOMETRICS, vol. 235, no. 2, 2023, pp. 1144–71, doi:10.1016/j.jeconom.2022.10.002.
APA
Boudt, K., Dragun, K., Sauri, O., & Vanduffel, S. (2023). ETF Basket-Adjusted Covariance estimation. JOURNAL OF ECONOMETRICS, 235(2), 1144–1171. https://doi.org/10.1016/j.jeconom.2022.10.002
Chicago author-date
Boudt, Kris, Kirill Dragun, Orimar Sauri, and Steven Vanduffel. 2023. “ETF Basket-Adjusted Covariance Estimation.” JOURNAL OF ECONOMETRICS 235 (2): 1144–71. https://doi.org/10.1016/j.jeconom.2022.10.002.
Chicago author-date (all authors)
Boudt, Kris, Kirill Dragun, Orimar Sauri, and Steven Vanduffel. 2023. “ETF Basket-Adjusted Covariance Estimation.” JOURNAL OF ECONOMETRICS 235 (2): 1144–1171. doi:10.1016/j.jeconom.2022.10.002.
Vancouver
1.
Boudt K, Dragun K, Sauri O, Vanduffel S. ETF Basket-Adjusted Covariance estimation. JOURNAL OF ECONOMETRICS. 2023;235(2):1144–71.
IEEE
[1]
K. Boudt, K. Dragun, O. Sauri, and S. Vanduffel, “ETF Basket-Adjusted Covariance estimation,” JOURNAL OF ECONOMETRICS, vol. 235, no. 2, pp. 1144–1171, 2023.
@article{01GJFHMQ0TRFARVTSBY6MQPY49,
  abstract     = {{The increase in trading frequency of Exchanged Traded Funds (ETFs) presents a positive externality for financial risk management when the price of the ETF is available at a higher frequency than the price of the component stocks. The positive spillover consists in improving the accuracy of pre-estimators of the integrated covariance of the stocks included in the ETF basket. The proposed ETF Basket-Adjusted Covariance (BAC) equals the pre-estimator plus a minimal adjustment matrix such that the covariance-implied stock-ETF covariation equals a target value. We focus on a truncated pre-averaged version of the (Hayashi and Yoshida, 2005) pre-estimator and derive the asymptotic properties of its implied stock-ETF covariation. The simulation study confirms that the accuracy gains are substantial in all cases considered. In the empirical part of the paper, we show the gains in tracking error efficiency when using the BAC adjustment to construct portfolios that replicate a broad index using a subset of stocks.}},
  author       = {{Boudt, Kris and Dragun, Kirill and Sauri, Orimar and Vanduffel, Steven}},
  issn         = {{0304-4076}},
  journal      = {{JOURNAL OF ECONOMETRICS}},
  keywords     = {{Applied Mathematics,Economics and Econometrics,Index tracking,Localized Hayashi-Yoshida,Stock-ETF covariation,Asynchronicity,ETF,Realized covariances,High-frequency data}},
  language     = {{eng}},
  number       = {{2}},
  pages        = {{1144--1171}},
  title        = {{ETF Basket-Adjusted Covariance estimation}},
  url          = {{http://doi.org/10.1016/j.jeconom.2022.10.002}},
  volume       = {{235}},
  year         = {{2023}},
}
Altmetric
View in Altmetric
Web of Science
Times cited: