Estimating Quadratic Variation When Quoted Prices Change by a Constant Increment

Jeremy Large

No 340, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: For financial assets whose best quotes almost always change by jumping by the market`s price tick size (one cent, five cents, etc.), this paper proposes an estimator of Quadratic Variation which controls for microstructure effects. It measures the prevalence of alternations, where quotes jump back to their just-previous price. It defines a simple property called uncorrelated alternation, which under conditions implies that the estimator is consistent in an asymptotic limit theory, where jumps become very frequent and small. Feasible limit theory is developed, and in simulations works well.

Keywords: Realized Volatility; Realized Variance; Quadratic Variation; Market Microstructure; High-Frequency Data; Pure Jump Process (search for similar items in EconPapers)
JEL-codes: C10 C22 C80 (search for similar items in EconPapers)
Date: 2007-08-01
New Economics Papers: this item is included in nep-ecm and nep-mst
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Estimating quadratic variation when quoted prices change by a constant increment (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:340

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