High frequency market microstructure noise estimates and liquidity measures

DOI10.1214/08-AOAS200zbMath1160.62089arXiv0906.1444OpenAlexW2924283018MaRDI QIDQ1018630

Jialin Yu, Yacine Aït-Sahalia

Publication date: 20 May 2009

Published in: The Annals of Applied Statistics (Search for Journal in Brave)

Abstract: Using recent advances in the econometrics literature, we disentangle from high frequency observations on the transaction prices of a large sample of NYSE stocks a fundamental component and a microstructure noise component. We then relate these statistical measurements of market microstructure noise to observable characteristics of the underlying stocks and, in particular, to different financial measures of their liquidity. We find that more liquid stocks based on financial characteristics have lower noise and noise-to-signal ratio measured from their high frequency returns. We then examine whether there exists a common, market-wide, factor in high frequency stock-level measurements of noise, and whether that factor is priced in asset returns.

Full work available at URL: https://arxiv.org/abs/0906.1444

zbMATH Keywords

stock returnsliquidityhigh frequency datamarket microstructure noiserobust volatility estimation

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Nonparametric estimation (62G05) Microeconomic theory (price theory and economic markets) (91B24)

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