# Inference for the cross-covariance operator of stationary functional time series

## TL;DR

This paper develops statistical inference methods for the cross-covariance operator of stationary functional time series, including hypothesis testing and change-point detection, with practical application to stock price data.

## Contribution

It introduces a functional central limit theorem-based approach for inference on the cross-covariance operator and proposes a spectral density estimation method using functional PCA.

## Key findings

- Method performs well in simulations
- Effective change-point detection procedure
- Application to NYSE stock data demonstrates utility

## Abstract

When considering two or more time series of functions or curves, for instance those derived from densely observed intraday stock price data of several companies, the empirical cross-covariance operator is of fundamental importance due to its role in functional lagged regression and exploratory data analysis. Despite its relevance, statistical procedures for measuring the significance of such estimators are undeveloped. We present methodology based on a functional central limit theorem for conducting statistical inference for the cross-covariance operator estimated between two stationary, weakly dependent, functional time series. Specifically, we consider testing the null hypothesis that two series possess a specified cross-covariance structure at a given lag. Since this test assumes that the series are jointly stationary, we also develop a change-point detection procedure to validate this assumption, which is of independent interest. The most imposing technical hurdle in implementing the proposed tests involves estimating the spectrum of a high dimensional spectral density operator at frequency zero. We propose a simple dimension reduction procedure based on functional PCA to achieve this, which is shown to perform well in a small simulation study. We illustrate the proposed methodology with an application to densely observed intraday price data of stocks listed on the NYSE.