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Information Loss in Volatility Measurement with Flat Price Trading Author info | Abstract | Publisher info | Download info | Related research | Statistics Peter C.B. Phillips () (Cowles Foundation, Yale University )
Jun Yu (Singapore Management University)
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A model of price determination is proposed that incorporates flat trading features into an efficient price process. The model involves the superposition of a Brownian semimartingale process for the efficient price and a Bernoulli process that determines the extent of flat price trading. A limit theory for the conventional realized volatility (RV) measure of integrated volatility is developed. The results show that RV is still consistent but has an inflated asymptotic variance that depends on the probability of flat trading. Estimated quarticity is similarly affected, so that both the feasible central limit theorem and the inferential framework suggested in Barndorff-Nielson and Shephard (2002) remain valid under flat price trading.
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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number
1598.
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Length: 27 pages
Date of creation: Jan 2007Date of revision:
Handle: RePEc:cwl:cwldpp:1598Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA Phone: (203) 432-3702 Fax: (203) 432-6167 Web page: http://cowles.econ.yale.edu/ More information through EDIRC
Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
For technical questions regarding this item, or to correct its listing, contact: (Glena Ames).
Keywords: Bernoulli process Brownian semimartingale Flat trading Quarticity function Realized volatility Other versions of this item:
Find related papers by JEL classification: C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports :
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Torben G. Andersen & Tim Bollerslev & Nour Meddahi, 2005.
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Other versions: Barndorff-Nielsen, Ole E. & Graversen, Svend Erik & Jacod, Jean & Shephard, Neil, 2006.
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"Econometric analysis of realized volatility and its use in estimating stochastic volatility models ,"
Journal Of The Royal Statistical Society Series B ,
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Neil Shephard & Ole Barndorff-Nielsen, 2001.
"Econometric Analysis of Realised Volatility and Its Use in Estimating Stochastic Volatility Models ,"
Economics Series Working Papers
071, University of Oxford, Department of Economics.
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"Econometric analysis of realised volatility and its use in estimating stochastic volatility models ,"
Economics Papers
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"Modeling and Forecasting Realized Volatility ,"
Econometrica ,
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Other versions:
Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001.
"Modeling and Forecasting Realized Volatility ,"
NBER Working Papers
8160, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted) Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001.
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Center for Financial Institutions Working Papers
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Hansen, Peter R. & Lunde, Asger, 2006.
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Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Ebens, Heiko, 2001.
"The distribution of realized stock return volatility ,"
Journal of Financial Economics ,
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[Downloadable!] (restricted)
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