Limit theorems for the empirical distribution function of scaled increments of Itô semimartingales at high frequencies

DOI10.1214/13-AAP965zbMATH Open1429.62371arXiv1407.0518OpenAlexW3102930492MaRDI QIDQ744376FDOQ744376

Authors: Viktor Todorov, George Tauchen 

Publication date: 25 September 2014

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

Abstract: We derive limit theorems for the empirical distribution function of "devolatilized" increments of an It^{o} semimartingale observed at high frequencies. These "devolatilized" increments are formed by suitably rescaling and truncating the raw increments to remove the effects of stochastic volatility and "large" jumps. We derive the limit of the empirical c.d.f. of the adjusted increments for any It^{o} semimartingale whose dominant component at high frequencies has activity index of $$, where $$ corresponds to diffusion. We further derive an associated CLT in the jump-diffusion case. We use the developed limit theory to construct a feasible and pivotal test for the class of It^{o} semimartingales with nonvanishing diffusion coefficient against It^{o} semimartingales with no diffusion component.

Full work available at URL: https://arxiv.org/abs/1407.0518

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zbMATH Keywords

jumpsstochastic volatilityhigh-frequency dataKolmogorov-Smirnov teststable processItô semimartingale

Mathematics Subject Classification ID

Nonparametric hypothesis testing (62G10) Asymptotic properties of nonparametric inference (62G20) Markov processes: estimation; hidden Markov models (62M05) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

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Cited In (12)

• The drift burst hypothesis
• Testing against constant factor loading matrix with large panel high-frequency data
• Trading-flow assisted estimation of the jump activity index
• Testing for pure-jump processes for high-frequency data
• Jump activity estimation for pure-jump semimartingales via self-normalized statistics
• Variation-based tests for volatility misspecification
• Nonparametric estimation of jump diffusion models
• Testing the type of a semi-martingale: Itō against multifractal
• Inference for local distributions at high sampling frequencies: a bootstrap approach
• The fine structure of equity-index option dynamics
• Exact Bayesian moment based inference for the distribution of the small-time movements of an Itô semimartingale
• PELVE: probability equivalent level of VaR and ES

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