A Test for Dependence and Covariance Estimator of Market Microstructure Noise
AbstractThere are many approaches for estimating an integrated variance and covariance in the presence of market microstructure noise. It is important to know a dependence of noise to construct the integrated variance and covariance estimators. We study a time dependence of bivariate noise processes in this paper. We propose a test statistic for the dependence of the noises and an autocovariance estimator of the noises and derive its asymptotic distribution. The asymptotic distribution of the autocovariance estimator provides us to another test statistic which is for significance of the autocovariances and for detection whether the noise exists or not. We obtain good performances of the test statistics and autocovariance estimator of the noises in a finite sample through Monte Carlo simulation. In empirical illustration, we confirm that the proposed statistics and estimators capture various dependence patterns of the market microstructure noises.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 07-03-Rev.2.
Length: 40 pages
Date of creation: Mar 2008
Date of revision:
test statistic; market microstructure noise; time-dependence; nonsynchronous observations; high frequency data.;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- D49 - Microeconomics - - Market Structure and Pricing - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-04 (All new papers)
- NEP-ECM-2008-04-04 (Econometrics)
- NEP-MST-2008-04-04 (Market Microstructure)
- NEP-ORE-2008-04-04 (Operations Research)
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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