Correction to "Leverage and volatility feedback effects in high-frequency data" [J. Financial Econometrics 4 (2006) 353--384]

TL;DR

This paper corrects an error in a previous study on cross-covariances of squared returns under the Heston model, providing the accurate distribution and confirming the original results still hold.

Contribution

It derives the correct distribution of squared returns in the Heston model and verifies that previous results remain valid with this correction.

Findings

Corrected the distribution of squared returns in the Heston model

Confirmed previous results are still valid with the corrected distribution

Provides a clarification and correction to prior work

Abstract

Bollerslev et al. (2006) study the cross-covariances for squared returns under the Heston (1993) stochastic volatility model. In order to obtain these cross-covariances the authors use an incorrect expression for the distribution of the squared returns. Here we will obtain the correct distribution of the squared returns and check that, under this new distribution, the result in Appendix A.2 in Bollerslev et al. (2006) still holds.