Estimating Quadratic Variation When Quoted Prices Jump by a Constant Increment

Jeremy Large

No 2005-FE-05, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: Financial assets` quoted prices normally change through frequent revisions, or jumps. For markets where quotes are almost always revised by the minimum price tick, this paper proposes a new estimator of Quadratic Variation which is robust to microstructure effects. It compares the number of alternations, where quotes are revised back to their previous price, to the number of other jumps. Many markets exhibit a lack of autocorrelation in their quotes` alternation pattern. Under quite general no leverage assumptions, whenever this is so the proposed statistic is consistent as the intensity of jumps increases without bound. After an empirical implementation, some useful corollaries of this are given.

Keywords: Realized Volatility; Realized Variance; Quadratic Variation; Market Microstructure; High-Frequency Data; Pure Jump Process (search for similar items in EconPapers)
JEL-codes: C10 C22 C80 (search for similar items in EconPapers)
Date: 2005-06-01
References: Add references at CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Estimating quadratic variation when quoted prices jump by a constant increment (2005)
Working Paper: Estimating quadratic variation when quoted prices jump by a constant increment (2005)
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