Spectral norm bounds for high-dimensional realized covariance matrices and application to weak factor models

Abstract

Motivated by statistical analysis of latent factor models for high-frequency financial data, we develop sharp upper bounds for the spectral norm of the realized covariance matrix of a high-dimensional Itô semimartingale with possibly infinite activity jumps. For this purpose, we develop Burkholder-Gundy type inequalities for matrix martingales with the help of the theory of non-commutative $L^p$ spaces. The obtained bounds are applied to estimating the number of (relevant) common factors in a continuous-time latent factor model from high-frequency data in the presence of weak factors.

47 pages, 4 figures, 8 tables