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Between data cleaning and inference: Pre-averaging and robust estimators of the efficient price

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  • Mykland, Per A.
  • Zhang, Lan

Abstract

Pre-averaging is a popular strategy for mitigating microstructure in high frequency financial data. As the term suggests, transaction or quote data are averaged over short time periods ranging from 30 s to five min, and the resulting averages approximate the efficient price process much better than the raw data. Apart from reducing the size of the microstructure, the methodology also helps synchronise data from different securities. The procedure is robust to short term dependence in the noise.

Suggested Citation

  • Mykland, Per A. & Zhang, Lan, 2016. "Between data cleaning and inference: Pre-averaging and robust estimators of the efficient price," Journal of Econometrics, Elsevier, vol. 194(2), pages 242-262.
  • Handle: RePEc:eee:econom:v:194:y:2016:i:2:p:242-262
    DOI: 10.1016/j.jeconom.2016.05.005
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    Cited by:

    1. repec:eee:econom:v:202:y:2018:i:1:p:18-44 is not listed on IDEAS
    2. repec:eee:econom:v:208:y:2019:i:1:p:101-119 is not listed on IDEAS
    3. Bibinger, Markus & Neely, Christopher & Winkelmann, Lars, 2019. "Estimation of the discontinuous leverage effect: Evidence from the NASDAQ order book," Journal of Econometrics, Elsevier, vol. 209(2), pages 158-184.

    More about this item

    Keywords

    Consistency; Cumulants; Contiguity; Continuity; Discrete observation; Efficiency; Equivalent martingale measure; High frequency data; Jumps; Leverage effect; M-estimation; Medianisation; Microstructure; Pre-averaging; Realised beta; Realised volatility; Robust estimation; Semi-martingale; Stable convergence;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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