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Robust estimation of integrated variance and quarticity under flat price and no trading bias

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  • Schulz, Frowin C.

Abstract

This paper investigates a selection of methods disentangling contributions from price jumps to realized variance. Flat prices (consecutively sampled prices in calendar time with the same value) and no trading (no price observation at sampling points), both frequently occurring stylized facts in financial high-frequency datasets, can cause a considerable bias in each considered method. Hence, we propose an approach to robustify those methods so that they can provide undistorted statistical results based on intraday intervals not influenced by flat prices and no trading. The new approach is tested in realistic Monte Carlo experiments and shows to be extraordinary robust against varying levels of flat price and no trading bias. Additionally, we examine the new approach empirically with a dataset of electricity forward contracts traded on the Nord Pool Energy Exchange. We obtain coherent conclusions with respect to predefined qualitative indicators.

Suggested Citation

  • Schulz, Frowin C., 2010. "Robust estimation of integrated variance and quarticity under flat price and no trading bias," Discussion Papers in Econometrics and Statistics 4/10, University of Cologne, Institute of Econometrics and Statistics.
    • Handle: RePEc:zbw:ucdpse:410
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    References listed on IDEAS

    as
    1. Ole E. Barndorff-Nielsen & Neil Shephard, 2006. "Econometrics of Testing for Jumps in Financial Economics Using Bipower Variation," The Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 1-30.
    2. Ole E. Barndorff-Nielsen, 2004. "Power and Bipower Variation with Stochastic Volatility and Jumps," Journal of Financial Econometrics, Oxford University Press, vol. 2(1), pages 1-37.
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    Cited by:

    1. Maria Elvira Mancino & Simona Sanfelici, 2012. "Estimation of quarticity with high-frequency data," Quantitative Finance, Taylor & Francis Journals, vol. 12(4), pages 607-622, December.
    2. Corsi, Fulvio & Pirino, Davide & Renò, Roberto, 2010. "Threshold bipower variation and the impact of jumps on volatility forecasting," Journal of Econometrics, Elsevier, vol. 159(2), pages 276-288, December.
    3. repec:hal:journl:peer-00741630 is not listed on IDEAS

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    More about this item

    Keywords

    Realized Variance; Zero-Returns; Price Jumps; Robust Estimation; High-Frequency Data; Electricity Forward Contract;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • 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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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