Asymptotics for realized covariance under market microstructure noise and sampling frequency determination

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Microstructure Noise , Realized Variance , and Optimal Sampling ∗

Observed asset prices are known to deviate from their efficient values due to market microstructure frictions. This paper studies the effects of market microstructure noise on nonparametric estimates of the efficient price integrated variance. Specifically, we consider both asymptotic and finite sample effects of general market microstructure noise on realized variance estimates. The finite sam...

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Microstructure noise, realized volatility, and optimal sampling∗

Recorded prices are known to diverge from their “efficient” values due to the presence of market microstructure contaminations. The microstructure noise creates a dichotomy in the model-free estimation of integrated volatility. While it is theoretically necessary to sum squared returns that are computed over very small intervals to better indentify the underlying volatility over a period, the s...

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The Hansen-Lunde (HL) research program is generally first-rate, displaying a rare blend of theoretical prowess and applied sense. The present paper is no exception. In a major theoretical advance, HL allow for correlation between microstructure (MS) noise and latent price. (I prefer “latent price” to terms such as “efficient price” or “true price,” which carry lots of excess baggage.) In a para...

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We study market microstructure noise in high-frequency data and analyze its implications for the realized variance (RV) under a general specification for the noise. We show that kernel-based estimators can unearth important characteristics of market microstructure noise and that a simple kernel-based estimator dominates the RV for the estimation of integrated variance (IV). An empirical analysi...

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ژورنال

عنوان ژورنال: Communications for Statistical Applications and Methods

سال: 2016

ISSN: 2383-4757

DOI: 10.5351/csam.2016.23.5.411