IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Jump-robust volatility estimation using nearest neighbor truncation

  • Andersen, Torben G.
  • Dobrev, Dobrislav
  • Schaumburg, Ernst

We propose two new jump-robust estimators of integrated variance that allow for an asymptotic limit theory in the presence of jumps. Specifically, our MedRV estimator has better efficiency properties than the tripower variation measure and displays better finite-sample robustness to jumps and small (“zero”) returns. We stress the benefits of local volatility measures using short return blocks, as this greatly alleviates the downward biases stemming from rapid fluctuations in volatility, including diurnal (intraday) U-shape patterns. An empirical investigation of the Dow Jones 30 stocks and extensive simulations corroborate the robustness and efficiency properties of our nearest neighbor truncation estimators.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0304407612000127
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 169 (2012)
Issue (Month): 1 ()
Pages: 75-93

as
in new window

Handle: RePEc:eee:econom:v:169:y:2012:i:1:p:75-93
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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.:

as in new window
  1. Veraart, Almut E.D., 2010. "Inference For The Jump Part Of Quadratic Variation Of Itô Semimartingales," Econometric Theory, Cambridge University Press, vol. 26(02), pages 331-368, April.
  2. Alain Chaboud & Benjamin Chiquoine & Erik Hjalmarsson & Mico Loretan, 2007. "Frequency of observation and the estimation of integrated volatility in deep and liquid financial markets," International Finance Discussion Papers 905, Board of Governors of the Federal Reserve System (U.S.).
  3. Peter C. B. Phillips & Jun Yu, 2009. "Information Loss in Volatility Measurement with Flat Price Trading," Global COE Hi-Stat Discussion Paper Series gd08-039, Institute of Economic Research, Hitotsubashi University.
  4. Ole E. Barndorff-Nielsen & Sven Erik Graversen & Jean Jacod & Neil Shephard, 2005. "Limit theorems for bipower variation in financial econometrics," Economics Papers 2005-W06, Economics Group, Nuffield College, University of Oxford.
  5. Fulvio Corsi & Davide Pirino & Roberto Renò, 2010. "Threshold bipower variation and the impact of jumps on volatility forecasting," Post-Print hal-00741630, HAL.
  6. Torben G. Andersen & Dobrislav Dobrev & Ernst Schaumburg, 2011. "A Functional Filtering and Neighborhood Truncation Approach to Integrated Quarticity Estimation," CREATES Research Papers 2011-23, School of Economics and Management, University of Aarhus.
  7. Andersen, Torben G. & Bollerslev, Tim & Dobrev, Dobrislav, 2007. "No-arbitrage semi-martingale restrictions for continuous-time volatility models subject to leverage effects, jumps and i.i.d. noise: Theory and testable distributional implications," Journal of Econometrics, Elsevier, vol. 138(1), pages 125-180, May.
  8. Lan Zhang & Per A. Mykland & Yacine Ait-Sahalia, 2003. "A Tale of Two Time Scales: Determining Integrated Volatility with Noisy High Frequency Data," NBER Working Papers 10111, National Bureau of Economic Research, Inc.
  9. Kim Christensen & Roel Oomen & Mark Podolskij, 2009. "Realised Quantile-Based Estimation of the Integrated Variance," CREATES Research Papers 2009-27, School of Economics and Management, University of Aarhus.
  10. Jim Griffin & Roel Oomen, 2008. "Sampling Returns for Realized Variance Calculations: Tick Time or Transaction Time?," Econometric Reviews, Taylor & Francis Journals, vol. 27(1-3), pages 230-253.
  11. Michael McAleer & Marcelo Cunha Medeiros, 2006. "Realized volatility: a review," Textos para discussão 531 Publication status: F, Department of Economics PUC-Rio (Brazil).
  12. Torben G. Andersen & Tim Bollerslev & Nour Meddahi, 2005. "Correcting the Errors: Volatility Forecast Evaluation Using High-Frequency Data and Realized Volatilities," Econometrica, Econometric Society, vol. 73(1), pages 279-296, 01.
  13. Christensen, Kim & Podolskij, Mark, 2006. "Range-Based Estimation of Quadratic Variation," Technical Reports 2006,37, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
  14. Ole E. Barndorff-Nielsen & Neil Shephard & Matthias Winkel, 2005. "Limit theorems for multipower variation in the presence of jumps," OFRC Working Papers Series 2005fe06, Oxford Financial Research Centre.
  15. Ole E. Barndorff-Nielsen & Neil Shephard, 2003. "Power and bipower variation with stochastic volatility and jumps," Economics Papers 2003-W17, Economics Group, Nuffield College, University of Oxford.
  16. Per A. Mykland & Lan Zhang, 2009. "Inference for Continuous Semimartingales Observed at High Frequency," Econometrica, Econometric Society, vol. 77(5), pages 1403-1445, 09.
  17. Xin Huang & George Tauchen, 2005. "The Relative Contribution of Jumps to Total Price Variance," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(4), pages 456-499.
  18. Aït-Sahalia, Yacine & Mykland, Per A. & Zhang, Lan, 2011. "Ultra high frequency volatility estimation with dependent microstructure noise," Journal of Econometrics, Elsevier, vol. 160(1), pages 160-175, January.
  19. O. E. Barndorff-Nielsen & P. Reinhard Hansen & A. Lunde & N. Shephard, 2009. "Realized kernels in practice: trades and quotes," Econometrics Journal, Royal Economic Society, vol. 12(3), pages C1-C32, November.
  20. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2002. "Parametric and Nonparametric Volatility Measurement," NBER Technical Working Papers 0279, National Bureau of Economic Research, Inc.
  21. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2535-2563, November.
  22. Christensen, Kim & Podolskij, Mark, 2007. "Realized range-based estimation of integrated variance," Journal of Econometrics, Elsevier, vol. 141(2), pages 323-349, December.
  23. Joel Hasbrouck, 1999. "The Dynamics of Discrete Bid and Ask Quotes," Journal of Finance, American Finance Association, vol. 54(6), pages 2109-2142, December.
  24. Mark Podolskij & Mathias Vetter, 2007. "Estimation of Volatility Functionals in the Simultaneous Presence of Microstructure Noise and Jumps," CREATES Research Papers 2007-27, School of Economics and Management, University of Aarhus.
  25. Torben G. Andersen & Dobrislav Dobrev & Ernst Schaumburg, 2009. "Duration-Based Volatility Estimation," Global COE Hi-Stat Discussion Paper Series gd08-034, Institute of Economic Research, Hitotsubashi University.
  26. repec:oup:jfinec:v:9:y::i:4:p:657-684 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:169:y:2012:i:1:p:75-93. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.