Deriving Correlation Matrices for Missing Financial Time-Series Data

  •  Schalk Burger    
  •  Searle Silverman    
  •  Gary van Vuuren    


The problem of missing data is prevalent in financial time series, particularly data such as foreign exchange rates and interest rate indices. Reasons for missing data include the clo-sure of financial markets over weekends and holidays and that sometimes, index data do not change between consecutive dates, resulting in stale data (also considered as missing data). Most statistical software packages function best when applied to complete da-tasets. Listwise deletion – a commonly-used approach to deal with missing data, is straightforward to use and implement, but it can exclude large portions of the original dataset (Allison, 2002). Where data are randomly missing or if the deleted data are insignificant (measured by statistical power), listwise deletion may add value. Techniques to handle missing data were suggested and implemented. These techniques were assessed to ascertain which provided the most accurate reconstructed datasets compared with complete dataset.

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