Correcting Intraday Periodicity Bias in Realized Volatility Measures

Holger Dette, Vasyl Golosnoy and Janosch Kellermann

Econometrics and Statistics, 2022, vol. 23, issue C, 36-52

Abstract: Diurnal fluctuations in volatility are a well-documented stylized fact of intraday price data. This warrants an investigation how this intraday periodicity (IP) affects both finite sample as well as asymptotic properties of several popular realized estimators of daily integrated volatility which are based on functionals of a finite number of intraday returns. It turns out that most of the estimators considered in this study exhibit a finite-sample bias due to IP, which can however get negligible when the number of intraday returns diverges to infinity. The appropriate correction factors for this bias are derived based on estimates of the IP. The adequacy of the new corrections is evaluated by means of a Monte Carlo simulation study and an empirical example.

Keywords: Integrated volatility; Realized measures; Intraday periodicity; Simulation-based methods (search for similar items in EconPapers)
JEL-codes: C14 C15 C58 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosta:v:23:y:2022:i:c:p:36-52

DOI: 10.1016/j.ecosta.2021.03.002

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