Estimating quadratic variation when quoted prices change by a constant increment

Jeremy Large

Journal of Econometrics, 2011, vol. 160, issue 1, 2-11

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)
Date: 2011
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Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Estimating Quadratic Variation When Quoted Prices Change by a Constant Increment (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:160:y:2011:i:1:p:2-11

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