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A noise-robust estimator of volatility based on interquantile ranges

Author

Listed:
  • Jin-Huei Yeh
  • Jying-Nan Wang
  • Chung-Ming Kuan

Abstract

This paper proposes a new class of estimators based on the interquantile range of intraday returns, referred to as interquantile range based volatility (IQRBV), to estimate the integrated daily volatility. More importantly and intuitively, it is shown that a properly chosen IQRBV is jump-free for its trimming of the intraday extreme two tails that utilize the range between symmetric quantiles. We exploit its approximation optimality by examining a general class of distributions from the Pearson type IV family and recommend using IQRBV .04 as the integrated variance estimate. Both our simulation and the empirical results highlight interesting features of the easy-to-implement and model-free IQRBV over the other competing estimators that are seen in the literature. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Jin-Huei Yeh & Jying-Nan Wang & Chung-Ming Kuan, 2014. "A noise-robust estimator of volatility based on interquantile ranges," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 751-779, November.
    • Handle: RePEc:kap:rqfnac:v:43:y:2014:i:4:p:751-779
    DOI: 10.1007/s11156-013-0391-7
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    More about this item

    Keywords

    Inter quantile range; Price jump; Realized volatility; Range-based volatility; Bi-power variation; Market microstructure noise; G10; G12; C58;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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