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Designing realised kernels to measure the ex-post variation of equity prices in the presence of noise

  • Ole E. Barndorff-Nielsen

    ()

    (University of Aarhus)

  • Peter Reinhard Hansen

    ()

    (Stanford University)

  • Asger Lunde

    ()

    (Aarhus School of Business)

  • Neil Shephard

    ()

    (Nuffield College, University of Oxford)

This paper shows how to use realised kernels to carry out efficient feasible inference on the ex-post variation of underlying equity prices in the presence of simple models of market frictions. The issue is subtle with only estimators which have symmetric weights delivering consistent estimators with mixed Gaussian limit theorems. The weights can be chosen to achieve the best possible rate of convergence and to have an asymptotic variance which is close to that of the maximum likelihood estimator in the parametric version of this problem. Realised kernels can also be selected to (i) be analysed using endogenously spaced data such as that in databases on transactions, (ii) allow for market frictions which are endogenous, (iii) allow for temporally dependent noise. The finite sample performance of our estimators is studied using simulation, while empirical work illustrates their use in practice.

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File URL: http://www.nuffield.ox.ac.uk/economics/papers/2006/w3/realised.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2006-W03.

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Length: 42 pages
Date of creation: 31 May 2006
Date of revision:
Handle: RePEc:nuf:econwp:0603
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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  1. repec:dgr:kubcen:200424 is not listed on IDEAS
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