Research output: Working paper
Research output: Working paper
}
TY - UNPB
T1 - High-frequency volatility estimation and the relative importance of market microstructure variables
AU - Li, Yifan
AU - Nolte, Ingmar
AU - Nolte, Sandra
PY - 2015/9/25
Y1 - 2015/9/25
N2 - In this paper we use an autoregressive conditional intensity approach to estimate local high-frequency volatility, and examine to what extent a large universe of market microstructure variables affects local volatility. Our findings support a sequential information arrival hypothesis on the high-frequency level since we show that contemporaneous trading volume is negatively, and lagged trading volume is positively related to local volatility. The use of a penalized likelihood method allows us to obtain a ranking in terms of the relative importance of all market microstructure variables considered. We find that, in a descending order, contemporaneous volume, bid-ask spread, absolute order imbalance, absolute order flow and absolute quote difference carry the most important information for local volatility modelling.
AB - In this paper we use an autoregressive conditional intensity approach to estimate local high-frequency volatility, and examine to what extent a large universe of market microstructure variables affects local volatility. Our findings support a sequential information arrival hypothesis on the high-frequency level since we show that contemporaneous trading volume is negatively, and lagged trading volume is positively related to local volatility. The use of a penalized likelihood method allows us to obtain a ranking in terms of the relative importance of all market microstructure variables considered. We find that, in a descending order, contemporaneous volume, bid-ask spread, absolute order imbalance, absolute order flow and absolute quote difference carry the most important information for local volatility modelling.
KW - High-Frequency Volatility Estimation
KW - Market Microstructure Effects
KW - Volume-Volatility Relationship
KW - ACI Model
M3 - Working paper
BT - High-frequency volatility estimation and the relative importance of market microstructure variables
ER -