Efficient estimation of integrated volatility incorporating trading information

Yingying Li, Shangyu Xie and Xinghua Zheng

Journal of Econometrics, 2016, vol. 195, issue 1, 33-50

Abstract: We consider a setting where market microstructure noise is a parametric function of trading information, possibly with a remaining noise component. Assuming that the remaining noise is Op(1/n), allowing irregular times and jumps, we show that we can estimate the parameters at rate n, and propose a volatility estimator which enjoys n convergence rate. Simulation studies show that our method performs well even with model misspecification and rounding. Empirical studies demonstrate the practical relevance and advantages of our method. Furthermore, we find that a simple model can account for a high percentage of the total variation in microstructure noise.

Keywords: High frequency data; Integrated volatility; Market microstructure noise; Realized volatility; Efficiency (search for similar items in EconPapers)
JEL-codes: C13 C14 D40 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:195:y:2016:i:1:p:33-50

DOI: 10.1016/j.jeconom.2016.05.017

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