This paper gives an unbiased estimator of the variance of overlapping returns. The estimator improves upon that proposed in Lo and MacKinlay (1988) [LM] (which is widely used in practice), as the LM estimator is consistent but not unbiased in small samples. The relevance of unbiasedness for variance ratio tests in a simulation experiment is illustrated.

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ERIM Article Series (EAS)
Applied Financial Economics
Erasmus Research Institute of Management

Franses, P. H., Bod, P., Blitz, D., & Kluitman, R. (2002). An unbiased variance estimator for overlapping returns. Applied Financial Economics, 155–158. doi:10.1080/09603100110090127