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I wonder if there are existing theory/literature about estimating a short-term statistical factor models for equities with different trading hours.

For example if we are estimating a universe with US and Japan equities, they don't close at the same time, so their daily returns are never "aligned." You can imagine Japanese stocks probably move along with US stocks, when Japan is closed and US is open. So the real correlation between them, would have been higher than observed correlation (if you just compute the naive daily returns correlation)

How is this problem handled in theory/practice?

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    $\begingroup$ The simplest solution (though not perfect) is to use longer horizons for calculating returns (e.g., weekly instead of daily). $\endgroup$
    – Helin
    Commented Apr 8 at 3:46

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