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Estimating quadratic variation when quoted prices jump by a constant increment

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Author Info
Jeremy Large () (Nuffield College, Oxford)

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Abstract

Financial assets' quoted prices normally change through frequent revisions, or jumps. For markets where quotes are almost always revised by the minimum price tick, this paper proposes a new estimator of Quadratic Variation which is robust to microstructure effects. It compares the number of alternations, where quotes are revised back to their previous price, to the number of other jumps. Many markets exhibit a lack of autocorrelation in their quotes' alternation pattern. Under quite general 'no leverage' assumptions, whenever this is so the proposed statistic is consistent as the intensity of jumps increases without bound. After an empirical implementation, some useful corollaries of this are given.

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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2005-W05.

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Length: 43 pages
Date of creation: 10 Nov 2005
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Handle: RePEc:nuf:econwp:0505

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Web page: http://www.nuff.ox.ac.uk/economics/

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Find related papers by JEL classification:
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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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.:
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Full references

Cited by:
(explanations, 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.)

  1. Ole E Barndorff-Nielsen & Peter Hansen & Asger Lunde & Neil Shephard, 2006. "Designing realised kernels to measure the ex-post variation of equity prices in the presence of noise," OFRC Working Papers Series 2006fe05, Oxford Financial Research Centre. [Downloadable!]
    Other versions:
  2. Michael McAleer & Marcelo Cunha Medeiros, 2006. "Realized volatility: a review," Textos para discussão 531 Publication status: F, Department of Economics PUC-Rio (Brazil). [Downloadable!]
    Other versions:
  3. Gael M. Martin & Andrew Reidy & Jill Wright, 2006. "Assessing the Impact of Market Microstructure Noise and Random Jumps on the Relative Forecasting Performance of Option-Implied and Returns-Based Volatility," Monash Econometrics and Business Statistics Working Papers 10/06, Monash University, Department of Econometrics and Business Statistics. [Downloadable!]
  4. Neil Shephard & Ole E. Barndorff-Nielsen, 2005. "Variation, jumps, market frictions and high frequency data in financial econometrics," Economics Series Working Papers 240, University of Oxford, Department of Economics. [Downloadable!]
    Other versions:
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