Preaveraging-Based Estimation of Quadratic Variation in the Presence of Noise and Jumps: Theory, Implementation, and Empirical Evidence

Nikolaus Hautsch and Mark Podolskij

Journal of Business & Economic Statistics, 2013, vol. 31, issue 2, 165-183

Abstract: This article contributes to the theory for preaveraging estimators of the daily quadratic variation of asset prices and provides novel empirical evidence. We develop asymptotic theory for preaveraging estimators in the case of autocorrelated microstructure noise and propose an explicit test for serial dependence. Moreover, we extend the theory on preaveraging estimators for processes involving jumps. We discuss several jump-robust measures and derive feasible central limit theorems for the general quadratic variation. Using transaction data of different stocks traded at the New York Stock Exchange, we analyze the estimators' sensitivity to the choice of the preaveraging bandwidth. Moreover, we investigate the dependence of preaveraging-based inference on the sampling scheme, the sampling frequency, microstructure noise properties, and the occurrence of jumps. As a result of a thorough empirical study, we provide guidance for optimal implementation of preaveraging estimators and discuss potential pitfalls in practice.

Date: 2013
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Citations: View citations in EconPapers (50)

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Related works:
Working Paper: Pre-Averaging Based Estimation of Quadratic Variation in the Presence of Noise and Jumps: Theory, Implementation, and Empirical Evidence (2010)
Working Paper: Pre-averaging based estimation of quadratic variation in the presence of noise and jumps: Theory, implementation, and empirical evidence (2010)
Working Paper: Pre-averaging based estimation of quadratic variation in the presence of noise and jumps: Theory, implementation, and empirical evidence (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:31:y:2013:i:2:p:165-183

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DOI: 10.1080/07350015.2012.754313

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