Pre-Averaging Based Estimation of Quadratic Variation in the Presence of Noise and Jumps: Theory, Implementation, and Empirical Evidence

Nikolaus Hautsch and Mark Podolskij ()

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper provides theory as well as empirical results for pre-averaging estimators of the daily quadratic variation of asset prices. We derive jump robust inference for pre-averaging estimators, corresponding feasible central limit theorems and an explicit test on serial dependence in microstructure noise. Using transaction data of different stocks traded at the NYSE, we analyze the estimators’ sensitivity to the choice of the pre-averaging bandwidth and suggest an optimal interval length. Moreover, we investigate the dependence of pre-averaging based inference on the sampling scheme, the sampling frequency, microstructure noise properties as well as the occurrence of jumps. As a result of a detailed empirical study we provide guidance for optimal implementation of pre-averaging estimators and discuss potential pitfalls in practice.

Keywords: Quadratic Variation; MarketMicrostructure Noise; Pre-averaging; Sampling Schemes; Jumps (search for similar items in EconPapers)
JEL-codes: C14 C22 G10 (search for similar items in EconPapers)
Pages: 53
Date: 2010-07-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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https://repec.econ.au.dk/repec/creates/rp/10/rp10_29.pdf (application/pdf)

Related works:
Journal Article: Preaveraging-Based Estimation of Quadratic Variation in the Presence of Noise and Jumps: Theory, Implementation, and Empirical Evidence (2013)
Working Paper: Pre-averaging based estimation of quadratic variation in the presence of noise and jumps: Theory, implementation, and empirical evidence (2010)
Working Paper: Pre-averaging based estimation of quadratic variation in the presence of noise and jumps: Theory, implementation, and empirical evidence (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-29

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