Heteroscedasticity-robust estimation of autocorrelation

Abstract

This paper proposes estimators of the first-order autocorrelation that are based on suitably transformed ratios of successive observations. The new estimators are given by simple functions of the observations. Numerical optimization is not required. Simulations show that they are highly robust against extreme values and clusters of high volatility and are therefore particularly useful for the estimation of serial correlation in return series. Besides, the results of the simulation study also call into question the common practice of correcting the small-sample bias of conventional estimators.