An Unbiased Measure of Integrated Volatility in the Frequency Domain

Fangfang Wang

Journal of Time Series Analysis, 2016, vol. 37, issue 2, 147-164

Abstract: type="main" xml:id="jtsa12137-abs-0001"> This article studies the effect of market microstructure noise on volatility estimation in the frequency domain. We propose a bias-corrected periodogram-based estimator of integrated volatility. We show that the new estimator is consistent and the central limit theorem is established under a general assumption of the noise. We also provide a feasible procedure for computing the bias-corrected estimator in practice. As a byproduct, we extract a consistent frequency-domain estimator of the long-run variance of market microstructure noise from high-frequency data.

Date: 2016
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