Dependent microstructure noise and integrated volatility estimation from high-frequency data
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Abstract: In this paper, we develop econometric tools to analyze the integrated volatility of the efficient price and the dynamic properties of microstructure noise in high-frequency data under general dependent noise. We first develop consistent estimators of the variance and autocovariances of noise using a variant of realized volatility. Next, we employ these estimators to adapt the pre-averaging method and derive a consistent estimator of the integrated volatility, which converges stably to a mixed Gaussian distribution at the optimal rate . To refine the finite sample performance, we propose a two-step approach that corrects the finite sample bias, which turns out to be crucial in applications. Our extensive simulation studies demonstrate the excellent performance of our two-step estimators. In an empirical study, we characterize the dependence structures of microstructure noise in several popular sampling schemes and provide intuitive economic interpretations; we also illustrate the importance of accounting for both the serial dependence in noise and the finite sample bias when estimating integrated volatility.
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Cites work
- scientific article; zbMATH DE number 1834045 (Why is no real title available?)
- scientific article; zbMATH DE number 6324332 (Why is no real title available?)
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Cited in
(11)- Frequency Domain Estimation of Integrated Volatility for Itô Processes in the Presence of Market-Microstructure Noise
- High frequency market microstructure noise estimates and liquidity measures
- On estimating market microstructure noise variance
- Asymptotic normality of Nadaraya–Waton kernel regression estimation for mixing high-frequency data
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- Ultra high frequency volatility estimation with dependent microstructure noise
- Microstructure noise in the continuous case: the pre-averaging approach
- Efficient estimation of integrated volatility incorporating trading information
- Nonparametric estimation for high-frequency data incorporating trading information
- Local mispricing and microstructural noise: a parametric perspective
- Bias-corrected realized variance under dependent microstructure noise
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