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Adaptive Realized Kernels

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  • Marine Carrasco

    (CIREQ - Centre interuniversitaire de recherche en économie quantitative - Université de Montréal)

  • Rachidi Kotchoni

    ()
    (THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise)

Abstract

We design adaptive realized kernels to estimate the integrated volatility in a framework that combines a stochastic volatility model with leverage effect for the efficient price and a semiparametric microstructure noise model speci ed at the highest frequency. Some time dependence parameters of the noise model must be estimated before adaptive realized kernels can be implemented. We study their performance by simulation and illustrate their use with twelve stocks listed in the Dow Jones Industrial. As expected, we nd that adaptive realized kernels achieves the optimal trade-off between the discretization error and the microstructure noise.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00867967.

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Date of creation: 30 Sep 2013
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Handle: RePEc:hal:wpaper:hal-00867967

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Keywords: Integrated Volatility; Method of Moment; Microstructure Noise; Realized Kernels;

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  1. Neil Shephard & Ole E. Barndorff-Nielsen, 2002. "Estimating quadratic variation using realised variance," Economics Series Working Papers 2001-W20, University of Oxford, Department of Economics.
  2. Ait-Sahalia, Yacine & Mykland, Per A. & Zhang, Lan, 2005. "Ultra high frequency volatility estimation with dependent microstructure noise," Discussion Paper Series 1: Economic Studies 2005,30, Deutsche Bundesbank, Research Centre.
  3. Masato Ubukata & Kosuke Oya, 2009. "Estimation and Testing for Dependence in Market Microstructure Noise," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 7(2), pages 106-151, Spring.
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  12. Lan Zhang & Per A. Mykland & Yacine Ait-Sahalia, 2003. "A Tale of Two Time Scales: Determining Integrated Volatility with Noisy High Frequency Data," NBER Working Papers 10111, National Bureau of Economic Research, Inc.
  13. Hansen, Peter R. & Lunde, Asger, 2006. "Realized Variance and Market Microstructure Noise," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 127-161, April.
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  15. Bernard Bollen & Brett Inder, 1999. "Estimating Daily Volatility in Financial Markets Utilizing Intraday Data," Working Papers 1999.01, School of Economics, La Trobe University.
  16. Hasbrouck, Joel, 1993. "Assessing the Quality of a Security Market: A New Approach to Transaction-Cost Measurement," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 191-212.
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