Bootstrapping realized volatility and realized beta under a local Gaussianity assumption

Ulrich Hounyo ()
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Ulrich Hounyo: Oxford-Man Institute of Quantitative Finance and CREATES, Postal: 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 a new bootstrap method for statistics based on high frequency returns. The new method exploits the local Gaussianity and the local constancy of volatility of high frequency returns, two assumptions that can simplify inference in the high frequency context, as recently explained by Mykland and Zhang (2009). Our main contributions are as follows. First, we show that the local Gaussian bootstrap is firstorder consistent when used to estimate the distributions of realized volatility and ealized betas. Second, we show that the local Gaussian bootstrap matches accurately the first four cumulants of realized volatility, implying that this method provides third-order refinements. This is in contrast with the wild bootstrap of Gonçalves and Meddahi (2009), which is only second-order correct. Third, we show that the local Gaussian bootstrap is able to provide second-order refinements for the realized beta, which is also an improvement of the existing bootstrap results in Dovonon, Gonçalves and Meddahi (2013) (where the pairs bootstrap was shown not to be second-order correct under general stochastic volatility). Lastly, we provide Monte Carlo simulations and use empirical data to compare the finite sample accuracy of our new bootstrap confidence intervals for integrated volatility and integrated beta with the existing results.

Keywords: High frequency data; realized volatility; realized beta; bootstrap; Edgeworth expansions (search for similar items in EconPapers)
JEL-codes: C15 C22 C58 (search for similar items in EconPapers)
Pages: 47
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 (5)

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