Abstract
Correlations of financial asset returns play a central role in designing investment portfolios by using Markowitz's modern portfolio theory (MPT). Correlations are calculated from asset prices that happen at various trading time intervals. Therefore, trading frequency dictates correlation values. This phenomenon is called the Epps effect in finance. We present variations of correlations as a function of trading frequency to quantify Epps effect. The results reiterate that portfolio rebalancing, particularly in multiple trading frequencies, requires good estimation of correlations in order to deliver reliable hedging.
Original language | English (US) |
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Title of host publication | 2011 4th IEEE International Workshop on Computational Advances in Multi-Sensor Adaptive Processing, CAMSAP 2011 |
Pages | 33-36 |
Number of pages | 4 |
DOIs | |
State | Published - Dec 1 2011 |
Event | 2011 4th IEEE International Workshop on Computational Advances in Multi-Sensor Adaptive Processing, CAMSAP 2011 - San Juan, Puerto Rico Duration: Dec 13 2011 → Dec 16 2011 |
Other
Other | 2011 4th IEEE International Workshop on Computational Advances in Multi-Sensor Adaptive Processing, CAMSAP 2011 |
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Country/Territory | Puerto Rico |
City | San Juan |
Period | 12/13/11 → 12/16/11 |
All Science Journal Classification (ASJC) codes
- Computer Networks and Communications