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Related Experiment Video

Updated: Dec 8, 2025

Extraction of the EPP Component from the Surface EMG
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Published on: December 16, 2009

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Fourier instantaneous estimators and the Epps effect.

Patrick Chang1

  • 1Department of Statistical Science, University of Cape Town, Rondebosch, Western Cape, South Africa.

Plos One
|September 22, 2020
PubMed
Summary
This summary is machine-generated.

The Malliavin-Mancino estimator offers stable instantaneous estimates for ultra-high frequency finance, outperforming the Cuchiero-Teichmann estimator when dealing with asynchronous data and the Epps effect.

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Area of Science:

  • Quantitative Finance
  • Financial Econometrics
  • High-Frequency Trading

Background:

  • The Epps effect, caused by asynchronous trading data, introduces bias in instantaneous correlation estimates.
  • Accurate estimation of instantaneous correlations is crucial for risk management and portfolio optimization in financial markets.

Purpose of the Study:

  • To compare the performance of the Malliavin-Mancino and Cuchiero-Teichmann Fourier instantaneous estimators.
  • To investigate the impact of the Epps effect on these estimators due to data asynchrony.
  • To propose a method for mitigating the Epps effect in instantaneous estimates.

Main Methods:

  • Comparative analysis of two Fourier-based instantaneous estimators: Malliavin-Mancino and Cuchiero-Teichmann.
  • Simulation study to demonstrate and analyze the instantaneous Epps effect.
  • Empirical analysis using Trade and Quote (TAQ) data from the Johannesburg Stock Exchange.

Main Results:

  • The Cuchiero-Teichmann estimator with previous tick interpolation shows unstable estimates under asynchronous conditions.
  • The Malliavin-Mancino estimator demonstrates stable estimates by bypassing the time domain, making it suitable for ultra-high frequency finance.
  • Empirical data confirms the instantaneous Epps effect and highlights variability in intraday correlation dynamics.

Conclusions:

  • The Malliavin-Mancino estimator is more robust to data asynchrony and the Epps effect than the Cuchiero-Teichmann estimator.
  • A simple method to ameliorate the Epps effect is presented.
  • Findings have implications for high-frequency trading strategies and financial data analysis.