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Ultra high frequency volatility estimation with dependent microstructure noise

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  • Ait-Sahalia, Yacine
  • Mykland, Per A.
  • Zhang, Lan

Abstract

We analyze the impact of time series dependence in market microstructure noise on the properties of estimators of the integrated volatility of an asset price based on data sampled at frequencies high enough for that noise to be a dominant consideration. We show that combining two time scales for that purpose will work even when the noise exhibits time series dependence, analyze in that context a refinement of this approach based on multiple time scales, and compare empirically our different estimators to the standard realized volatility. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2005,30.

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Date of creation: 2005
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Handle: RePEc:zbw:bubdp1:4224

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Keywords: Market microstructure; Serial dependence; High frequency data; Realized volatility; Subsampling; Two Scales Realized Volatility;

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  6. Zhou, Bin, 1996. "High-Frequency Data and Volatility in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 14(1), pages 45-52, January.
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  8. Jim Griffin & Roel Oomen, 2008. "Sampling Returns for Realized Variance Calculations: Tick Time or Transaction Time?," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 27(1-3), pages 230-253.
  9. Lan Zhang & Per A. Mykland & Yacine Ait-Sahalia, 2005. "Edgeworth Expansions for Realized Volatility and Related Estimators," NBER Technical Working Papers 0319, National Bureau of Economic Research, Inc.
  10. Jacod, Jean & Li, Yingying & Mykland, Per A. & Podolskij, Mark & Vetter, Mathias, 2009. "Microstructure noise in the continuous case: The pre-averaging approach," Stochastic Processes and their Applications, Elsevier, Elsevier, vol. 119(7), pages 2249-2276, July.
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  19. Ole E. Barndorff-Nielsen & Peter Reinhard Hansen & Asger Lunde & Neil Shephard, 2004. "Regular and Modified Kernel-Based Estimators of Integrated Variance: The Case with Independent Noise," OFRC Working Papers Series, Oxford Financial Research Centre 2004fe20, Oxford Financial Research Centre.
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  23. Harris, Lawrence, 1990. " Statistical Properties of the Roll Serial Covariance Bid/Ask Spread Estimator," Journal of Finance, American Finance Association, American Finance Association, vol. 45(2), pages 579-90, June.
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