On the inference about the spectral distribution of high-dimensional covariance matrix based on high-frequency noisy observations (1604.03638v2)

Abstract: In practice, observations are often contaminated by noise, making the resulting sample covariance matrix a signal-plus-noise sample covariance matrix. Aiming to make inferences about the spectral distribution of the population covariance matrix under such a situation, we establish an asymptotic relationship that describes how the limiting spectral distribution of (signal) sample covariance matrices depends on that of signal-plus-noise-type sample covariance matrices. As an application, we consider inferences about the spectral distribution of integrated covolatility (ICV) matrices of high-dimensional diffusion processes based on high-frequency data with microstructure noise. The (slightly modified) pre-averaging estimator is a signal-plus-noise sample covariance matrix, and the aforementioned result, together with a (generalized) connection between the spectral distribution of signal sample covariance matrices and that of the population covariance matrix, enables us to propose a two-step procedure to consistently estimate the spectral distribution of ICV for a class of diffusion processes. An alternative approach is further proposed, which possesses several desirable properties: it is more robust, it eliminates the effects of microstructure noise, and the asymptotic relationship that enables consistent estimation of the spectral distribution of ICV is the standard Marcenko-Pastur equation. The performance of the two approaches is examined via simulation studies under both synchronous and asynchronous observation settings.