Volatility of volatility: Estimation and tests based on noisy high frequency data with jumps

Yingying Li, Guangying Liu and Zhiyuan Zhang

Journal of Econometrics, 2022, vol. 229, issue 2, 422-451

Abstract: We establish a feasible central limit theorem with convergence rate n1/8 for the estimation of the integrated volatility of volatility (VoV) based on noisy high-frequency data with jumps. This is the first inference theory ever built for VoV estimation under such a general setup. The central limit theorem is applied to provide interval estimates of the VoV and conduct hypothesis tests. Furthermore, when one is interested in the null hypothesis that the VoV is zero, we show that a more powerful test can be established based on a VoV estimator with a convergence rate n1/5 under the null. Empirical results on the S&P 500 and individual stocks show strong evidence of non-zero VoV.

Keywords: Volatility of volatility; Central limit theorem; High frequency data; Microstructure noise; Semimartingale (search for similar items in EconPapers)
JEL-codes: C14 C22 G12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:229:y:2022:i:2:p:422-451

DOI: 10.1016/j.jeconom.2021.02.007

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