Estimating quadratic variation consistently in the presence of endogenous and diurnal measurement error

Ilze Kalnina and Oliver Linton

Journal of Econometrics, 2008, vol. 147, issue 1, 47-59

Abstract: We propose an econometric model that captures the effects of market microstructure on a latent price process. In particular, we allow for correlation between the measurement error and the return process and we allow the measurement error process to have a diurnal heteroskedasticity. We propose a modification of the TSRVÂ estimator of quadratic variation. We show that this estimator is consistent, with a rate of convergence that depends on the size of the measurement error, but is no worse than n-1/6. We investigate in simulation experiments the finite sample performance of various proposed implementations.

Keywords: Endogenous; noise; Market; microstructure; Realised; volatility; Semimartingale (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (63)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:147:y:2008:i:1:p:47-59

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