Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Least Squares inference on integrated volatility and the relationship between efficient Prices and noise
AU - Nolte, Ingmar
AU - Voev, Valeri
PY - 2012
Y1 - 2012
N2 - The expected value of sums of squared intraday returns (realized variance) gives rise to a least squares regression which adapts itself to the assumptions of the noise process and allows for joint inference on integrated variance (), noise moments, and price-noise relations. In the iid noise case, we derive the asymptotic variance of the and noise variance estimators and show that they are consistent. The joint estimation approach is particularly attractive as it reveals important characteristics of the noise process which can be related to liquidity and market efficiency. The analysis of dependence between the price and noise processes provides an often missing link to market microstructure theory. We find substantial differences in the noise characteristics of trade and quote data arising from the effect of distinct market microstructure frictions. This article has supplementary material online.
AB - The expected value of sums of squared intraday returns (realized variance) gives rise to a least squares regression which adapts itself to the assumptions of the noise process and allows for joint inference on integrated variance (), noise moments, and price-noise relations. In the iid noise case, we derive the asymptotic variance of the and noise variance estimators and show that they are consistent. The joint estimation approach is particularly attractive as it reveals important characteristics of the noise process which can be related to liquidity and market efficiency. The analysis of dependence between the price and noise processes provides an often missing link to market microstructure theory. We find substantial differences in the noise characteristics of trade and quote data arising from the effect of distinct market microstructure frictions. This article has supplementary material online.
KW - High-frequency data
KW - jumps
KW - market microstructure
KW - realized volatility
KW - subsampling
U2 - 10.1080/10473289.2011.637876
DO - 10.1080/10473289.2011.637876
M3 - Journal article
VL - 30
SP - 94
EP - 108
JO - Journal of Business and Economic Statistics
JF - Journal of Business and Economic Statistics
SN - 0735-0015
IS - 1
ER -