How Often to Sample a Continuous-Time Process in the Presence of Market Microstructure Noise

Yacine Ait-Sahalia

Review of Financial Studies, 2005, vol. 18, issue 2, pages 351-416

Abstract: In theory, the sum of squares of log returns sampled at high frequency estimates their variance. When market microstructure noise is present but unaccounted for, however, we show that the optimal sampling frequency is finite and derives its closed-form expression. But even with optimal sampling, using say 5-min returns when transactions are recorded every second, a vast amount of data is discarded, in contradiction to basic statistical principles. We demonstrate that modeling the noise and using all the data is a better solution, even if one misspecifies the noise distribution. So the answer is: sample as often as possible. Copyright 2005, Oxford University Press.

Date: 2005
View citations in EconPapers

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhi016 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: How Often to Sample a Continuous-Time Process in the Presence of Market Microstructure Noise (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:rfinst:v:18:y:2005:i:2:p:351-416

Ordering information: This journal article can be ordered from
http://www4.oup.co.uk/revfin/subinfo/

Access Statistics for this article

Review of Financial Studies is edited by Maureen O'Hara

More articles in Review of Financial Studies from Oxford University Press for Society for Financial Studies
Address: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Contact information at EDIRC.
Series data maintained by Christopher F. Baum ().