Bootstrap inference for pre-averaged realized volatility based on non-overlapping returns

Silvia Goncalves (), Ulrich Hounyo () and Nour Meddahi
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Ulrich Hounyo: University of Oxford and CREATES, Postal: Oxford-Man Institute of Quantitative Finance, University of Oxford, Eagle House, Walton, Well Road, Oxford OX2 6ED, UK

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: The main contribution of this paper is to propose bootstrap methods for realized volatility-like estimators defined on pre-averaged returns. In particular, we focus on the pre-averaged realized volatility estimator proposed by Podolskij and Vetter (2009). This statistic can be written (up to a bias correction term) as the (scaled) sum of squared pre-averaged returns, where the pre-averaging is done over all possible non-overlapping blocks of consecutive observations. Pre-averaging reduces the influence of the noise and allows for realized volatility estimation on the pre-averaged returns. The non-overlapping nature of the pre-averaged returns implies that these are asymptotically independent, but possibly heteroskedastic. This motivates the application of the wild bootstrap in this context. We provide a proof of the first order asymptotic validity of this method for percentile and percentile-t intervals. Our Monte Carlo simulations show that the wild bootstrap can improve the finite sample properties of the existing first order asymptotic theory provided we choose the external random variable appropriately. We use empirical work to illustrate its use in practice.

Keywords: High frequency data; realized volatility; pre-averaging; market microstructure noise; wild bootstrap. (search for similar items in EconPapers)
JEL-codes: C01 C58 (search for similar items in EconPapers)
Pages: 22
Date: 2013
New Economics Papers: this item is included in nep-ecm, nep-mst and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Bootstrap Inference for Pre-averaged Realized Volatility based on Nonoverlapping Returns (2014)
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