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Volatility and realized quadratic variation of differenced returns : A wavelet method approach

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Author Info
Høg, Esben () (Department of Business Studies, Aarhus School of Business)
Abstract

This paper analyzes some asymptotic results for an alternative estimator of integrated volatility in a continuous-time diffusion process of high frequency data (used in asset pricing finance).

The estimator, which is computationally efficient, is based on the quadratic variation of the second order log-price differences. This is contrary to the well known realized quadratic variation of intra daily returns (which is based on first order log-price differences). This latter is known as realized volatility.

Analytically, the asymptotics of the proposed estimator is compared to the usual realized volatility estimators. Lastly, we provide some simulation experiments to illustrate the results.

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Paper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series Finance Research Group Working Papers with number F-2008-06.

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Length: 21 pages
Date of creation: 01 Aug 2008
Date of revision:
Handle: RePEc:hhb:aarbfi:2008-06

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Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
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Keywords: continuous-time methods; quadratic variation; realized volatility; second order quadratic variation;

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  1. Andersen, Torben G. & Bollerslev, Tim, 1997. "Intraday periodicity and volatility persistence in financial markets," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 115-158, June. [Downloadable!] (restricted)
  2. Charlotte Christiansen, 2007. "Level-ARCH Short Rate Models with Regime Switching: Bivariate Modeling of US and European Short Rates," CREATES Research Papers 2007-05, School of Economics and Management, University of Aarhus. [Downloadable!]
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  3. Jan Bartholdy & Dennis Olson & Paula Peare, 2007. "Conducting Event Studies on a Small Stock Exchange," European Journal of Finance, Taylor and Francis Journals, vol. 13(3), pages 227-252. [Downloadable!] (restricted)
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  4. Consiglio, Andrea & De Giovanni, Domenico, 2007. "Pricing the Option to Surrender in Incomplete Markets," Finance Research Group Working Papers F-2007-02, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
  5. Bartholdy, Jan & Mateus, Cesário, 2006. "Debt and Taxes: Evidence from bank-financed unlisted firms," Finance Research Group Working Papers F-2006-02, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
  6. Christiansen, Charlotte & Ranaldo, Angelo, 2006. "Realized Bond-Stock Correlation: Macroeconomic Announcement Effects," Working Papers 2006-2, Swiss National Bank. [Downloadable!]
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  7. Christiansen, Charlotte & Joensen, Juanna Schröter & Rangvid, Jesper, 2005. "Do More Economists Hold Stocks?," Finance Research Group Working Papers F-2005-02, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
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  8. Barucci, Emilio & Reno, Roberto, 2002. "On measuring volatility of diffusion processes with high frequency data," Economics Letters, Elsevier, vol. 74(3), pages 371-378, February. [Downloadable!] (restricted)
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