EconPapers    
Economics at your fingertips  
 

Sampling Returns for Realized Variance Calculations: Tick Time or Transaction Time?

Jim Griffin and Roel Oomen ()

Econometric Reviews, 2008, vol. 27, issue 1-3, 230-253

Abstract: This article introduces a new model for transaction prices in the presence of market microstructure noise in order to study the properties of the price process on two different time scales, namely, transaction time where prices are sampled with every transaction and tick time where prices are sampled with every price change. Both sampling schemes have been used in the literature on realized variance, but a formal investigation into their properties has been lacking. Our empirical and theoretical results indicate that the return dynamics in transaction time are very different from those in tick time and the choice of sampling scheme can therefore have an important impact on the properties of realized variance. For RV we find that tick time sampling is superior to transaction time sampling in terms of mean-squared-error, especially when the level of noise, number of ticks, or the arrival frequency of efficient price moves is low. Importantly, we show that while the microstructure noise may appear close to IID in transaction time, in tick time it is highly dependent. As a result, bias correction procedures that rely on the noise being independent, can fail in tick time and are better implemented in transaction time.

Keywords: Market microstructure noise; Optimal sampling; Pure jump process; Realized variance; Tick time; Transaction time (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (32) Track citations by RSS feed

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/07474930701873341 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:emetrv:v:27:y:2008:i:1-3:p:230-253

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/LECR20

DOI: 10.1080/07474930701873341

Access Statistics for this article

Econometric Reviews is currently edited by Dr. Essie Maasoumi

More articles in Econometric Reviews from Taylor & Francis Journals
Bibliographic data for series maintained by ().

 
Page updated 2020-11-12
Handle: RePEc:taf:emetrv:v:27:y:2008:i:1-3:p:230-253