Validity of Edgeworth expansions for realized volatility estimators

Ulrich Hounyo () and Bezirgen Veliyev
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Ulrich Hounyo: Oxford-Man Institute, University of Oxford, and Aarhus University and CREATES, Postal: Department of Economics and Business, Fuglesangs Allé 4, 8210 Aarhus V, Denmark

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

Abstract: The main contribution of this paper is to establish the formal validity of Edgeworth expansions for realized volatility estimators. First, in the context of no microstructure effects, our results rigorously justify the Edgeworth expansions for realized volatility derived in Gonalves and Meddahi (2009). Second, we show that the validity of the Edgeworth expansions for realized volatility may not cover the optimal two-point distribution wild bootstrap proposed by Gonçalves and Meddahi (2009). Then, we propose a new optimal nonlattice distribution which ensures the second-order correctness of the bootstrap. Third, in the presence of microstructure noise, based on our Edgeworth expansions, we show that the new optimal choice proposed in the absence of noise is still valid in noisy data for the pre-averaged realized volatility estimator proposed by Podolskij and Vetter (2009). Finally, we show how confidence intervals for integrated volatility can be constructed using these Edgeworth expansions for noisy data. Our Monte Carlo simulations show that the intervals based on the Edgeworth corrections have improved the finite sample properties relatively to the conventional intervals based on the normal approximation.

Keywords: Realized volatility; pre-averaging; bootstrap; Edgeworth expansions; confidence intervals. (search for similar items in EconPapers)
JEL-codes: C15 C22 C58 (search for similar items in EconPapers)
Pages: 31
Date: 2015-05-03
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mst
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Related works:
Journal Article: Validity of Edgeworth expansions for realized volatility estimators (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2015-21

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