EconPapers    
Economics at your fingertips  
 

Finite sample accuracy and choice of sampling frequency in integrated volatility estimation

Morten Nielsen () and Per Frederiksen

Journal of Empirical Finance, 2008, vol. 15, issue 2, 265-286

Abstract: We consider the properties of three estimation methods for integrated volatility, i.e. realized volatility, Fourier, and wavelet estimation, when a typical sample of high-frequency data is observed. We employ several different generating mechanisms for the instantaneous volatility process, e.g. Ornstein-Uhlenbeck, long memory, and jump processes. The possibility of market microstructure contamination is also entertained using models with bid-ask bounce and price discreteness, in which case alternative estimators with theoretical justification under market microstructure noise are also examined. The estimation methods are compared in a simulation study which reveals a general robustness towards persistence or jumps in the latent stochastic volatility process. However, bid-ask bounce effects render realized volatility and especially the wavelet estimator less useful in practice, whereas the Fourier method remains useful and is superior to the other two estimators in that case. More strikingly, even compared to bias correction methods for microstructure noise, the Fourier method is superior with respect to RMSE while having only slightly higher bias. A brief empirical illustration with high-frequency GE data is also included.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927-5398(07)00066-7
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Finite Sample Accuracy of Integrated Volatility Estimators (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:15:y:2008:i:2:p:265-286

Access Statistics for this article

Journal of Empirical Finance is currently edited by R. T. Baillie, F. C. Palm, Th. J. Vermaelen and C. C. P. Wolff

More articles in Journal of Empirical Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-09-20
Handle: RePEc:eee:empfin:v:15:y:2008:i:2:p:265-286