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Testing if the market microstructure noise is fully explained by the informational content of some variables from the limit order book

Simon Clinet () and Yoann Potiron ()

Papers from arXiv.org

Abstract: In this paper, we build tests for the presence of residual noise in a model where the market microstructure noise is a known parametric function of some variables from the limit order book. The tests compare two distinct quasi-maximum likelihood estimators of volatility, where the related model includes a residual noise in the market microstructure noise or not. The limit theory is investigated in a general nonparametric framework. In the presence of residual noise, we examine the central limit theory of the related quasi-maximum likelihood estimation approach.

New Economics Papers: this item is included in nep-ecm and nep-mst
Date: 2017-09, Revised 2019-02
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