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Stochastic leverage effect in high-frequency data: a Fourier based analysis

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  • Curato, Imma Valentina
  • Sanfelici, Simona

Abstract

The stochastic leverage effect, defined as the standardized covariation between the returns and their related volatility, is analyzed in a stochastic volatility model set-up. A novel estimator of the effect is defined using a pre-estimation of the Fourier coefficients of the return and the volatility processes. The consistency of the estimator is proven. Moreover, its finite sample properties are studied in the presence of microstructure noise effects. The Fourier methodology is applied to S&P500 futures prices to investigate the magnitude of the stochastic leverage effect detectable at high-frequency.

Suggested Citation

  • Curato, Imma Valentina & Sanfelici, Simona, 2022. "Stochastic leverage effect in high-frequency data: a Fourier based analysis," Econometrics and Statistics, Elsevier, vol. 23(C), pages 53-82.
    • Handle: RePEc:eee:ecosta:v:23:y:2022:i:c:p:53-82
    DOI: 10.1016/j.ecosta.2021.03.001
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    More about this item

    Keywords

    Fourier analysis; leverage effect; high-frequency data; microstructure noise;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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