Estimating the Volatility of Discrete Stock Prices
This paper introduces an estimator of stock price volatility which eliminates, at least asymptotically , the biases that are caused by the discreteness of observed stock pr ices. Assuming that the observed stock prices are continuously monito red, an estimator is constructed using the notion of how quickly the price changes rather than how much the price changes. It is shown tha t this estimator has desirable asymptotic properties, including consi stency and normality. Also, through a simulation study, the authors s how that it outperforms natural estimators for low and middle priced stocks. Further, the simulation study demonstrates that the proposed estimator is robust to certain misspecifications in measuring the tim e between price changes. Copyright 1988 by American Finance Association.
Volume (Year): 43 (1988)
Issue (Month): 2 (June)
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